Net Profit Margin

Net profit margin is the broadest measure of profitability. It shows how much of every unit of revenue ends up as profit for shareholders.

For example, a company with revenue of 2 million and net income of 150,000 has a net profit margin of 7.5%. For every 100 of sales, 7.50 is left after paying all costs, interest and taxes.

Net profit margin is affected by everything in the income statement: pricing, production costs, operating expenses, the amount of debt the company carries, its tax rate and any one-off gains or losses. This makes it a useful overall summary, but also means it can be distorted by unusual items in a particular year.

Comparing net profit margin with operating margin shows how much financing and taxes reduce profit. A company with a 15% operating margin but only a 7.5% net margin is losing a substantial share of operating profit to interest and taxes.

As with other margins, comparisons are most meaningful within the same industry and over several years, since typical margins differ greatly between sectors.