1. What is Net Profit Margin?

Net Profit Margin (NPM) is a financial ratio that shows the percentage of revenue that remains as profit after all expenses are deducted. 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:

• \( NPM \) — Net Profit Margin (percentage)
• \( \text{Net Profit} \) — Total revenue minus all expenses (currency)
• \( \text{Revenue} \) — Total income from sales (currency)

Explanation: The formula calculates what percentage of revenue is converted to profit. Higher percentages indicate more efficient cost management relative to revenue.

3. Importance of Net Profit Margin

Details: Net profit margin is a key indicator of a company's financial health and profitability. It allows comparison between companies of different sizes and across industries.

4. Using the Calculator

Tips: Enter net profit and revenue in the same currency. Both values must be positive, and revenue cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good net profit margin?
A: This varies by industry. Generally, 10% is average, 20% is good, and 5% is low. Compare with industry benchmarks for meaningful analysis.

Q2: How is net profit different from gross profit?
A: Gross profit is revenue minus cost of goods sold. Net profit subtracts ALL expenses (operating costs, taxes, interest, etc.) from revenue.

Q3: Can net profit margin be negative?
A: Yes, if expenses exceed revenue. This indicates the company is losing money on each sale.

Q4: Why track net profit margin over time?
A: Tracking trends helps identify improving or declining profitability, efficiency changes, and the impact of cost control measures.

Q5: How often should net profit margin be calculated?
A: Typically calculated quarterly with financial statements, but can be done monthly for more frequent monitoring.