Net margin is the ratio of net profits to revenues for a company and is often used as an indicator of a company's ability to control its costs. In other words, how much of a profit does the company generate for every dollar it takes in. The formula for calcluating net margin is:
Net margins vary from company to company with individual industries having typically expected ranges given similar constraints within the industry. For example, a retail company might be expected to have low net margins while a technology company could generate margins of 15-20% or more. A good way to determine which industries are most profitable is to compare net margins across industries.
Companies that increase their net margins over time generally see their share price rise over time as well as the company is increasing the rate at which it turns dollars earned into profits.