1. What is Net Profit Margin?

The Net Profit Margin is a financial ratio that shows what percentage of revenue is converted into profit. It measures how much out of every dollar of sales a company actually keeps in earnings.

2. How Does the Calculator Work?

The calculator uses the Net Profit Margin formula:

Where:

• Net Profit — Total revenue minus all expenses (including taxes and interest)
• Revenue — Total income from sales of goods or services

Explanation: The formula shows what percentage of revenue remains as profit after all expenses are paid.

3. Importance of Net Profit Margin

Details: Net profit margin is a key indicator of a company's financial health and efficiency. It helps compare profitability between companies and industries, and tracks performance over time.

4. Using the Calculator

Tips: Enter net profit and revenue in dollars. Both values must be positive numbers, and revenue cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good net profit margin?
A: It varies by industry, but generally 10% is considered average, 20% is good, and 5% is low.

Q2: How is this different from gross profit margin?
A: Gross margin only subtracts cost of goods sold, while net margin subtracts all expenses including operating costs, taxes, and interest.

Q3: Can net profit margin be negative?
A: Yes, if expenses exceed revenue, resulting in a net loss rather than profit.

Q4: Why is net profit margin expressed as a percentage?
A: Percentage format allows for easier comparison between companies of different sizes and across industries.

Q5: How often should I calculate net profit margin?
A: Businesses typically calculate it quarterly or annually, but more frequent calculation can help identify trends.