MarketLearn
Chapter 24Intermediate~10 min

Gross, operating, EBITDA and net margins

The four main margins and what each one subtracts.

A margin measures profit as a percentage of revenue. Instead of looking at profit in rupees, margins show how much of every ₹100 of sales the company keeps at each stage.

Gross margin = (Gross profit ÷ Revenue) × 100

Operating margin = (Operating profit ÷ Revenue) × 100

Net margin = (Net profit ÷ Revenue) × 100

Gross profit is revenue minus the direct cost of what was sold. Operating profit subtracts running costs such as salaries and rent. Net profit subtracts interest and tax as well. Each margin shows where money is being lost or kept.

MarginFictional company example
Gross margin40%
Operating margin18%
Net margin12%

The margins shrink as more costs are deducted at each stage.

EBITDA margin is a related measure: earnings before interest, tax, depreciation and amortisation, as a percentage of revenue. It sits between gross and operating margin and is often used to compare operating performance before accounting and financing effects.

Margin waterfall

Follow revenue down through every cost to reach net profit, and see each margin form.

1,000
400
200
100
50
25
Revenue1,000

The top line

Cost of goods / services−400
Gross profit600

60% gross margin

Operating expenses−200
EBITDA400

40% EBITDA margin

Depreciation−100
EBIT (operating profit)300

30% operating margin

Interest−50
Tax−62.5
Net profit187.5

18.8% net margin

Gross margin

60%

EBITDA margin

40%

Operating margin

30%

Net margin

18.8%

Margins are best compared with the company's own history and with close competitors. A 5% net margin is excellent in some industries and poor in others, so cross-industry comparisons mislead.
The interactive chart shows how revenue flows down through costs to each profit line. Move the amounts and watch how each margin responds.

Key takeaways

  • A margin is profit expressed as a percentage of revenue.
  • Gross, operating and net margins subtract progressively more costs.
  • EBITDA margin measures operating performance before interest, tax and depreciation.
  • Each margin shows where money is kept or lost along the way.

Check your understanding

Every answer comes with an explanation — the goal is understanding, not a score.

Question 1 / 30%

A company has revenue of ₹1,000 crore and gross profit of ₹400 crore. Its gross margin is:

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