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.
Measured as
Net interest margin = (interest income - interest expense) / earning assets
Misused when
- Mixing non-interest income into the numerator.
- Ignoring seasonality or rate reset timing.
Operator takeaway
- Track NIM trend to spot pricing pressure or funding cost shifts.
- Use consistent earning asset definitions across periods.
- Tie Net Interest Margin to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Loan amortization: how monthly payments and total interest work if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Net Interest Margin belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
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.