Net Margin & One-Time Items

Net margin is the share of revenue left after every expense, including interest and taxes. But one-time gains and charges can distort it. Here is how to read net margin and spot when a single event is flattering or hurting the numbers.

From operating to net

Operating margin measures profit from the core business: revenue minus product costs and operating expenses, divided by revenue. Net margin goes further, subtracting interest, taxes and any unusual items, then dividing net income by revenue.

Normally net margin is lower than operating margin, because interest and taxes come out. When net margin is higher than operating margin, something outside the core business, like a gain on an investment, has added to profit.

Gross, operating and net margin: each layer subtracts more costs.

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