What is Margins?
Margins show what percentage of revenue becomes profit at different stages. Gross margin is after product costs, operating after all operations, net after everything.
Think of it like this
Selling lemonade for $10. Ingredients cost $3 (70% gross margin). Add $4 for stand rental and labor (30% operating margin). After $1 taxes, keep $2 (20% net margin).
Formula
Margin = (Revenue - Costs) / Revenue × 100- Gross Margin: Revenue - Cost of Goods Sold
- Operating Margin: Operating Income / Revenue
- Net Margin: Net Income / Revenue
Why it matters
- Shows operational efficiency
- Indicates pricing power
- Reveals competitive advantage
- Trends show improving/declining business
What's a good value?
< 5%
Low
Razor-thin profits, high competition
5-10%
Moderate
Average profitability
10-20%
Good
Solid profitability
> 20%
Excellent
Strong pricing power
Net > 20%
Excellent
Highly profitable
Real-world example
Apple gross margin: 43% - premium pricing. Walmart net margin: 2% - volume business. Software company: 80% gross - minimal COGS. Airlines: 5% net - competitive industry.
Things to watch out for
- Compare within same industry
- Can sacrifice margin for growth
- Temporary factors affect margins
- Different accounting methods impact
Screen US stocks by Margins in the app, and see which companies pass right now.