Net Profit Margin

Definition

Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability calculated as after-tax net income (net profits) divided by sales (revenue). Net profit margin is displayed as a percentage. It shows the amount of each sales dollar left over after all expenses have been paid.

Net profit margin is a key ratio of profitability. It is very useful when comparing companies in similar industries. A higher net profit margin means that a company is more efficient at converting sales into actual profit.

Net profit margin calculation (formula)

Net profit margin = Profit (after tax) / Revenue

Both variables are shown on the income statement or statement of comprehensive income.

Compare: gross margin, return on sales.

Exact Formula in the ReadyRatios Analytic Software

Net profit margin = F2[ProfitLoss]/F2[Revenue]

F2 – Statement of comprehensive income (IFRS).

Industry benchmark

You can find industry benchmarks for profit margin in our reference book.