Net Profit Margin

The net profit margin measures the profit available for distribution amongst shareholders after paying all the expenses during a given period of time. It indicates the efficiency of all business activities conducted during a given period, such as production, administration, selling, financing, pricing, and tax management. It is calculated as follows:

Net Profit Margin = Net Profit / Net Sales

Analysis of profit margins along with the study of a company’s cost structure enables an analyst to identify sources of efficiency. Interpreting the trend of net profit should be done along with the study of changes in accounting policies applied by the company.