Definition
Net interest margin measures the spread between interest income and interest expense relative to earning assets.
Formula
Net interest margin = (interest income - interest expense) / earning assets
Example
If interest income is $900k, expense is $500k, and earning assets are $20M, NIM is 2.0%.
How to use it
- Track NIM trend to spot pricing pressure or funding cost shifts.
- Use consistent earning asset definitions across periods.
Common mistakes
- Mixing non-interest income into the numerator.
- Ignoring seasonality or rate reset timing.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Net Interest Margin" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Loan amortization: how monthly payments and total interest work) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Investment Decision Calculator: Evaluate an investment using NPV, IRR, discounted payback, and profitability index from simple cash flow assumptions.
- Profitability Index Calculator: Calculate profitability index (PI) from discounted cash flows and estimate the max investment for a target PI.
- WACC Calculator: Calculate WACC (Weighted Average Cost of Capital) from capital structure, cost of equity, cost of debt, and tax rate.
- Equity Value Calculator: Convert enterprise value (EV) into equity value using cash, debt, and other adjustments (optionally per share).
- Pre-money vs Post-money Valuation Calculator: Convert between pre-money and post-money valuation and estimate investor ownership from a financing round size.
Guides
- Loan amortization: how monthly payments and total interest work: A practical guide to loan amortization: monthly payment formula, why interest dominates early, and how term and rate affect total interest.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.