The aim of this study was to examine the relationship between pedigree index for kg fat plus protein and the financial margins between milk returns and food, health and reproduction costs in individual lactations. Records of milk and milk component production, food intake, health and reproduction were obtained for individual Holstein-Friesian cows over 38 weeks of lactation over a 7-year period, at the University of Edinburgh/Scottish Agricultural College Langhill dairy cattle research centre. Records for a total of 302 lactations were collected. Milk prices, input costs and margins were calculated for individual animals, using 1989/90 values. Regressions of margin over food costs (MF) and margin over food, health and reproduction costs (MFHR) on pedigree index (PI) for kg fat plus protein were all positive and ranged from £2·50± 3·00 per kg PI for MFHR for heifers, to £6·50 ± 2·10 per kg PI for MFHR for all animals. The lower regression for heifers was attributed to higher reproduction costs in animals of higher genetic merit, though the standard error for the regression estimated in this smaller data set was high. Sensitivity analyses showed that the regression coefficients remained very similar, even with ±50% changes in food, health or reproduction costs. It was concluded that selection on PI for kg fat plus protein is likely to lead to increased margin over food, health and reproduction costs.