Lesson 1 of 4 · 9 min read
Revenue, profit & margin
A share is a piece of a company — so you need to learn to read how that company makes money.
Revenue is not the same as profit
Revenue is all the money that comes in from sales. But costs still have to be subtracted: purchasing, salaries, rent, marketing, interest and tax. What remains is the net profit. A company can generate billions in revenue and still make a loss — revenue only tells you the top of the story.
The path from revenue to profit
Think of a funnel. At the top: revenue. Subtract the direct costs of the product → gross profit. Subtract operating costs → operating profit (EBIT). Subtract interest and tax → net profit, right at the bottom. That's why net profit is called 'the bottom line'.
In practice
A company sells €100 worth of shoes. Purchasing costs €60 (gross profit €40). Staff and rent €25 (operating profit €15). Interest and tax €5. Net profit: €10 — 10% of revenue.
Margin: how much does the company keep?
The net margin is net profit divided by revenue. In the example above: €10 / €100 = 10%. A high margin means a company keeps a lot from each euro sold — often a sign of a strong brand or an efficient company. Supermarkets have low margins (1–3%), software companies sometimes 25%+.
Stocky says
Always compare margins within the same sector. A software company with a 5% margin is weak; a supermarket with a 5% margin is exceptionally strong.
Is revenue growing too?
A profitable company is nice, but investors mainly pay for growth. If revenue rises 20% every year, the company grows quickly. If revenue shrinks, even a high margin is no rescue. So look at the trend over several years, not at a single snapshot.
Did you know?
For years Amazon deliberately made barely any profit: it plowed almost all revenue back into growth. Investors who understood the revenue growth were richly rewarded.
In practice: the quarterly report
Every three months, listed companies publish their figures (earnings). Analysts have an expectation beforehand. If the company beats that expectation (a 'beat'), the share price often rises; if it falls short (a 'miss'), it drops — sometimes hard, even though there is still profit.
The price reacts to expectations, not to the figure itself
A company can post record profit and still fall if the market had expected even more. Investing is about expectations versus reality.
Remember this
- Revenue is all the money coming in; only after all costs does the net profit remain.
- Net margin (profit divided by revenue) shows how much a company keeps per euro — only compare within the same sector.
- Investors mainly pay for revenue growth; look at the trend over several years.
- Prices react to expectations, not to the figure itself — even record profit can fall.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
Want to practise, not just read?
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