1. What is Net Profit Margin?

The Net Profit Margin (NPM) ratio measures how much net profit is generated as a percentage of revenue. It shows the percentage of revenue that remains as profit after all expenses are deducted.

2. How Does the Calculator Work?

The calculator uses the NPM formula:

Where:

• \( Net\ Profit \) — Total revenue minus all expenses (taxes, cost of goods sold, operating expenses, etc.)
• \( Revenue \) — Total income from sales before any expenses are deducted

Explanation: The ratio shows what percentage of each dollar earned translates into profit.

3. Importance of NPM Calculation

Details: NPM is a key profitability metric that helps businesses assess their financial health, compare performance across periods, and benchmark against competitors.

4. Using the Calculator

Tips: Enter net profit and revenue in the same currency (both in dollars for example). Revenue must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good net profit margin?
A: This varies by industry, but generally 10% is average, 20% is good, and 5% is low. Service businesses often have higher margins than manufacturers.

Q2: How is NPM different from gross profit margin?
A: Gross margin only considers cost of goods sold, while net margin includes all expenses (operating costs, taxes, interest, etc.).

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

Q4: Why track NPM over time?
A: Tracking trends helps identify improving or deteriorating profitability that might not be obvious from absolute profit numbers.

Q5: How often should NPM be calculated?
A: Typically calculated quarterly and annually, but can be done monthly for close financial monitoring.