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
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?