In this “What Is…?” series, we break down complex investment terms for folks who are just learning about investing.
Right now, let’s examine what the term “net profit margin” means.
Source: Giphy
So, What Is Net Profit Margin?
Similar to the gross profit margin, net profit marginis a profitability ratio that reveals how much net profit a company makes for every dollar of revenue it generates.
Net profit (also known as net income, net earnings, or bottom line) is what the company is left with after subtracting all expenses from its revenue.
Such expenses include staff costs, rental costs, advertising costs, research and development costs, and taxes.
Net Profit Margin Formula
Net profit margin can be calculated as follows:
Net Profit = Revenue – Total Expenses
Net Profit Margin = (Net Profit/Revenue) x 100%
If a company’s net profit margin is 20%, it means that for every dollar of revenue it makes, the firm is left with 20 cents in net profit....
