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.