Quick Definition
Determines how much profit is left over after each dollar of sales.
Net Profit Margin Formula
Explanation of Net Profit Margin
The Net Profit Margin measures the
Net Earnings in relation to the
Net Sales. After all the bills are paid and expenses covered, this ratio measures how much net profit remains out of each dollar of sales. This ratio is important to calculate, but you need to look at
Gross Profit Margin and
Operating Profit Margin as well as
Net Profit Margin provides you with the big picture of how well the company is doing.
Importance of Net Profit Margin
As with the other margin ratios, the higher the Net Profit Margin, the better. Taxes, Interest, and expenses not associated with operations will lower this ratio compared to the other margin ratios.
