Net Profit Margin
Net Profit Margin is a financial metric that shows the percentage of Revenue that remains as profit after all expenses, taxes, and costs have been deducted. It is calculated by dividing net profit by total Revenue and multiplying by 100 to get a percentage. This ratio is important for assessing a company’s profitability and financial health.
Formula: Net Profit Margin = (Net Profit / Total Revenue) × 100
Example 1: If a company has a net profit of $200,000 and total Revenue of $1,000,000, the net profit Margin would be:
(200,000 / 1,000,000) × 100 = 20%
Example 2: If another company has a net profit of $50,000 and total Revenue of $500,000, the net profit Margin would be:
(50,000 / 500,000) × 100 = 10%
This means the first company is more efficient at converting Revenue into profit compared to the second company.