< Back to Glossary# Net profit margin calculation

To calculate the net profit margin, you need to divide the net profit by the revenue and multiply the result by 100 to express it as a percentage. Net profit is calculated by subtracting the total expenses from the revenue.

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%. 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.

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