Profitability
Net margin
What it is
Net margin shows what percentage of revenue actually becomes profit after ALL costs (production, sales, R&D, interest, taxes). It's the ultimate efficiency test.
How to read it
The higher the net margin, the more pricing power and cost control the company has. Companies with a MOAT (competitive advantage) typically maintain high and stable net margins over time.
Common reference points
- Exceptional (software, luxury)> 20%
- Good10 – 20%
- Average3 – 10%
- Weak (retail, transport)< 3%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Very sector-dependent. Grocers operate at 1-2% margins — not a problem if volume is massive. Always compare within the same sector.
Other measures — Profitability
Educational content. Polaris is not a registered investment adviser and makes no recommendation.