"Profit went down" tells you something happened. "Profit margin went down" tells you how much of every shilling of revenue the company actually kept — and that's the number you can compare year to year, and company to company.
In Lesson 1 you saw Safaricom's profit for the year fall from KShs 52.5bn in FY2023 to KShs 42.7bn in FY2024, even though revenue grew. That raw comparison is useful, but it hides a question: how much profit did Safaricom keep out of every shilling of revenue? A company can grow its profit in shillings while actually becoming less efficient at turning revenue into profit, if revenue grew even faster. The tool for answering that question is a margin.
Today we look at the simplest and most-quoted one: net profit margin.
Net profit margin = Profit for the year ÷ Total revenue, expressed as a percentage. It answers: "out of every KShs 100 of revenue, how many shillings ended up as profit after every single cost, including tax?"
We already have both figures we need — profit for the year and total revenue — from Safaricom's Statement of Profit or Loss for the years ended 31 March 2024 and 2023.
| KShs millions | FY2024 | FY2023 |
|---|---|---|
| Total revenue | 349,447.2 | 310,904.8 |
| Profit for the year | 42,658.4 | 52,482.8 |
Source: Safaricom PLC Annual Report and Financial Statements 2024, p.177 (figures simplified/grouped for this lesson; audited, currency KShs millions).
Do the division for each year:
In FY2023, Safaricom kept about 16.9 shillings of profit for every 100 shillings of revenue. In FY2024, that fell to about 12.2 shillings — a margin drop of roughly 4.7 percentage points. This confirms, with a proper measurement, what Lesson 1 spotted by eye: the business became less efficient at converting revenue into profit, not just smaller in absolute profit. As you already know from Lesson 1, the main driver was depreciation & amortisation rising faster than revenue (largely the Ethiopia network build-out) — margin analysis doesn't tell you the "why," but it tells you precisely "how much," which is what lets you compare year to year on equal footing.
Notice the margin fell from 16.9% to 12.2% — a difference of 4.7 percentage points. That's different from saying the margin fell "4.7%," which would suggest a much smaller move. Getting this distinction right matters once you start comparing companies or years, so always say "percentage points" when comparing two percentages directly.
A margin turns an absolute shilling figure into a rate, which is what makes it comparable: you can compare Safaricom's FY2024 margin to its own FY2023 margin (same company, different year), or eventually to another telco's margin (different company, same industry). What a margin can't do on its own is tell you whether a margin of "12.2%" is good or bad in isolation — that depends entirely on what's normal for the industry a company operates in. A 12.2% margin might be unremarkable for a capital-heavy telco and would mean something completely different for, say, a bank (which we'll get to in a moment) or a software company. Margins are for comparison, not verdicts.
Net profit margin uses revenue as the denominator, which works cleanly for an ordinary company like Safaricom. Equity Group, a bank, doesn't report "revenue" in the same sense — it reports interest income and non-interest income separately, and its core business is fundamentally different (lending money, not selling airtime). We're deliberately holding off on comparing Safaricom's and Equity Group's margins directly until later in the course, once you've seen enough of a bank's statements to know what's being compared.
Next lesson, we'll look at Return on Equity (ROE) — a different profitability ratio that compares profit not to revenue, but to the shareholders' own money invested in the business. It's the ratio that finally lets us start comparing a capital-heavy telco to a capital-heavy bank.
Primary source for this lesson's numbers: Safaricom PLC Annual Report and Financial Statements 2024.
Something unclear, or want to dig into a line item we skipped (like "why percentage points instead of percent")? Ask your teacher — that's what these sessions are for.