< Back to Glossary# Net profit margin

The net profit margin is a financial ratio that shows the percentage of revenue that is left over after all expenses have been accounted for. It is calculated by dividing the net profit by the revenue and multiplying the result by 100 to express it as a percentage. The net profit margin is a useful metric for measuring a company's profitability. It shows the percentage of revenue that is left after all expenses have been accounted for. A higher net profit margin indicates a more profitable company. To calculate the net profit margin, you need to subtract the total expenses from the revenue to calculate the net profit. Total expenses include the cost of goods sold (COGS), operating expenses, interest expense, and tax expense.

Here's an example:

Suppose a company has the following financials for the year:

Revenue: $100,000

COGS: $60,000

Operating expenses: $20,000

Interest expense: $5,000

Tax expense: $5,000.

To calculate the net profit margin, you would first need to calculate the net profit by subtracting the total expenses from the revenue:

Net profit = Revenue - COGS - Operating expenses - Interest expense - Tax expense

= $100,000 - $60,000 - $20,000 - $5,000 - $5,000

= $10,000.

Next, you would divide the net profit by the revenue and multiply the result by 100 to express it as a percentage:

Net profit margin = Net profit / Revenue * 100

= $10,000 / $100,000 * 100

= 10%.

Therefore, the company's net profit margin for the year is 10%.

Revolutionize Your Accounting with Finanshels

Book Free ConsultationTrustpilot

"If you ever do any financial modeling/forecasting, I seriously can't recommend Finanshels enough. they are a dependable team of professionals who work hard to deliver results."

Bader Al Kazemi

Founder, Optimize App