Net profit margin
Net profit margin is net income expressed as a percentage of revenue, showing what share of each euro of sales flows through to the bottom line after all costs, interest and tax.
FrameworkRatio analysis
What it is
See it move
A manufacturer earns €8 million in revenue and, after cost of goods sold, operating expenses, interest and tax, keeps €640,000 as net income. Dividing net income by revenue gives a net profit margin of 8% — the most comprehensive margin ratio, and the figure shareholders watch most closely when judging earnings quality.
The formula
Variables
- Net income (profit after all costs, interest and tax) (€)
- Revenue (total sales for the period) (€)
The most comprehensive margin ratio; shows what share of each euro of sales flows to the bottom line.
Check yourself
A firm generates revenue of €4,000,000. Its cost of goods sold is €2,400,000, operating expenses are €700,000, interest expense is €200,000, and income tax is €140,000. What is the net profit margin?