Gross, Operating & Net Margins
Three margins that show where profit is made and where it leaks away.
A marginThe deposit required to hold a leveraged position. is simply profit as a percentage of revenue — how many paise of each sales rupee the company keeps at a given stage. The three margins map directly onto the income-statement waterfall.
- Gross marginThe deposit required to hold a leveraged position. = gross profit ÷ revenue → pricing power vs production cost.
- Operating marginOperating profit as a percentage of revenue. = operating profitEarnings before interest, tax, depreciation, amortisation. ÷ revenue → efficiency of the core business.
- Net marginThe deposit required to hold a leveraged position. = net profit ÷ revenue → what finally reaches owners after everything.
Margins turn raw rupees into comparable percentages, so you can compare a ₹500 cr company to a ₹50,000 cr one fairly. Reading all three together shows WHERE profit is made or lost: strong gross but weak net marginThe deposit required to hold a leveraged position. means costs or interest are eating the gains downstream.
ExampleCompany A: 60% gross, 25% operating, 18% net — a high-quality, efficient business. Company B: 60% gross but 8% operating — same pricing power, but bloated operating costs are leaking the profit away. The gapA jump between one bar’s close and the next bar’s open. tells the story.
Key takeawayMargins are profit ÷ revenue at each stage (gross/operating/net). Read all three to see where a company makes — or leaks — its profit.
FAQs
Is a higher margin always better?
Higher is generally better, but margins vary hugely by industry (software vs retail), and a high-volume low-margin model can be excellent. Compare a company to its own history and direct peers, and watch the trend.