The net profit margin figures how much net income is generated as a percentage of revenue.
Calculate net profit margin by dividing net income by revenue then multiplying it by 100, where net income is equal to total revenues subtracted by total expenses.
Formula:
Net income = total revenues - total expenses| Net income |
| Revenue |
Or with more details:
| Revenue - COGS - E - I - T |
| Revenue |
where:
COGS = cost of goods sold
E = Operating and other expenses
I = Interest
T = Taxes
Example: A company report for the end of the year has revenue equal to $80,000, net income was $10,000. The net profit margin of this company is calculated by dividing net income by its revenue, multiplying it by 100 to get the net profit margin in percentage.
| 10000 |
| 80000 |
The net profit margin of this company equals 12.5%, which means that for every dollar generated by this company in sales, the company kept $0.125 as profit.