Net profit margin
PAT Margin
Net profit margin is the profit left after every expense and tax, expressed as a percentage of sales. It is also called PAT margin, for profit after tax.
Formula
Net margin
Net Margin (%) = Profit After Tax ÷ Sales × 100
Markup, for contrast
Markup (%) = (Selling Price − Cost Price) ÷ Cost Price × 100
Benchmark: Compare within the industry; a high margin is not the same as a good business
Reading the number
Margin is always calculated on the selling price. Markup is calculated on the cost price. Buy a pencil for ₹10 and sell it for ₹15: the markup is 50 percent (₹5 on ₹10), but the margin is 33.3 percent (₹5 on ₹15). Finance almost always means margin.
The purpose of a business is not to sell at the highest possible price. It is to put in a little money and make as much as possible. A high margin is one route. Selling more volume at a lower margin is the other, and it is usually the better one, because it drives repeat purchase and loyalty. That is why margin should be read alongside return on equity, never alone.
Indian example
Related ratios
Glossary terms
Go deeper
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