metrics explained

Net Margin vs Operating Margin: What's the Difference?

When it comes to financial statements, companies often use the terms "net margin" and "operating margin" interchangeably. However, there is a big difference between the two metrics. Here's a look at the key differences between net margin and operating margin:

Net Margin

Net margin is a company's overall profitability. To calculate net margin, you take a company's net income and divide it by its total revenue. Net margin is usually expressed as a percentage. For example, if a company has a net margin of 5%, that means it has a profit of $0.05 for every $1 of sales.

Net margin is a good indicator of a company's overall profitability, but it doesn't give you much insight into how a company is generating that profit. For that, you need to look at operating margin.

Operating Margin

Operating margin is a company's profitability from its core operations. To calculate operating margin, you take a company's operating income and divide it by its total revenue. Operating margin is usually expressed as a percentage.

For example, if a company has an operating margin of 10%, that means it has a profit of $0.10 for every $1 of sales.

Operating margin is a good indicator of a company's profitability from its core operations. It's a more detailed metric than net margin, and it can give you insights into where a company is generating its profit.

Key Differences

Now that you know the key differences between net margin and operating margin, let's take a closer look at each metric:

Net Margin

Net margin is a company's overall profitability. To calculate net margin, you take a company's net income and divide it by its total revenue. Net margin is usually expressed as a percentage.

Net margin is a good indicator of a company's overall profitability, but it doesn't give you much insight into how a company is generating that profit. For that, you need to look at operating margin.

Operating Margin

Operating margin is a company's profitability from its core operations. To calculate operating margin, you take a company's operating income and divide it by its total revenue. Operating margin is usually expressed as a percentage.

Operating margin is a good indicator of a company's profitability from its core operations. It's a more detailed metric than net margin, and it can give you insights into where a company is generating its profit.

Final Thoughts

Net margin and operating margin are two important profitability metrics. Net margin is a company's overall profitability, while operating margin is a company's profitability from its core operations.

Both metrics are important, but operating margin is usually more helpful in understanding where a company is generating its profit.

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