Definition

Net profit margin or net margin is a metric that tells companies how much net income or profit they made as a percentage of total revenue. Net profit margin is expressed as a percentage and illustrates how much of every dollar in revenue earned translates into profit for a company.

Example

Net Profit margin = Net Profit ⁄ Total revenue x 100. Net profit is what's left after deducting expenses from a company's total revenue. For example, if a company's profit margin is 10%, it means that the company earns $0.10 of net profit out of every $1 of revenue.

Why it matters

Net profit margin is an important metric to gauge a company's financial health. By monitoring the increase or decrease in its net profit margin, a company can understand whether it's on the right track to achieve forecasted profits. Since net profit margin is expressed as a percentage, investors and stakeholders can compare the profitability across companies, irrespective of their size.

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