“Margin” just means profit as a percentage of revenue — but which profit? There are three common margins, and confusing them is one of the easiest mistakes in financial analysis.
The answer first
The three margins line up with the three profit levels of the income statement:
| Margin | Formula | What it strips out |
|---|---|---|
| Gross margin | (Revenue − cost of goods sold) ÷ revenue | Only direct production costs |
| Operating margin | Operating income ÷ revenue | Production costs + operating expenses (R&D, SG&A) |
| Net margin | Net income ÷ revenue | Everything, including interest and tax |
Because each step subtracts more, gross ≥ operating ≥ net for a normal company. The profit-margin calculator computes any of them from a profit figure and revenue.
Operating vs net margin in practice
This site reports operating and net margin for every company that tags the underlying figures. A few latest-year examples from SEC filings:
| Company | Operating margin | Net margin |
|---|---|---|
| Visa (V) | 60.0% | 50.1% |
| NVIDIA (NVDA) | 60.4% | 55.6% |
| Microsoft (MSFT) | 45.6% | 36.1% |
| Netflix (NFLX) | 29.5% | 24.3% |
| Walmart (WMT) | 4.2% | 3.1% |
Visa keeps roughly half of every revenue dollar as net profit — a hallmark of an asset-light payment network. Walmart keeps about three cents on the dollar, but on more than $700B of revenue. Compare profitability directly in the highest net margin and highest operating margin rankings.
Why net is below operating
The gap between operating and net margin comes from interest and taxes. A heavily indebted company pays more interest, dragging net margin below operating margin. Tax rates and one-off items (write-downs, legal settlements) also move net income around, which is why net margin can be lumpier year to year than operating margin.
What’s a “good” margin?
There is no universal answer — margins are an industry story:
- High-margin: software, payment networks, branded pharma, luxury goods.
- Low-margin, high-volume: grocery, general retail, distribution, airlines.
A 5% net margin can be excellent for a supermarket and alarming for a software company. Always compare within a sector, and look at the trend over several years, which our company pages show.
Keep reading
For the lines these margins are built on, see revenue vs operating income vs net income. To turn margins into a valuation, see how to calculate the P/E ratio.
Figures here are factual data compiled from SEC filings — not investment advice; figures may contain errors or lag the original filing; verify on SEC EDGAR before relying on them.