Net income divided by revenue — the percentage of each rupee of revenue that reaches the bottom line after all costs, taxes, and interest payments.
Deeper Explanation
Net profit margin is the most commonly cited profitability metric but also the most easily distorted by one-time items, tax changes, and financing decisions. Operating margin (EBIT ÷ revenue) strips out financing effects and is more useful for assessing operational efficiency. Gross margin (gross profit ÷ revenue) strips out both financing and operating overhead to reveal pricing power and production efficiency. For long-term investors, the trend in margins over a business cycle matters more than any single year's figure — expanding margins signal competitive advantage strengthening; compressing margins signal competitive pressure building.
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