Net Profit Margin

Profitability Metric Investment Wiki — Fundamentals
Net Profit Margin is the final percentage of revenue that remains as profit after all expenses, interest, taxes, and preferred stock dividends have been paid. It is the definitive "bottom line" metric of corporate profitability.
Quick Reference
Type Profitability Metric
Formula Net Income ÷ Total Revenue
Excellent Target > 20%
Primary Use Measuring absolute bottom-line profitability

1.0 The Formula

Basic Form

formulaNet Profit Margin = Net Income / Total Revenue

If a company pulls in $1,000 in sales, pays $400 for materials (COGS), $300 for employees and rent (OpEx), $100 in interest on loans, and $50 in taxes, they have $150 left. The Net Profit Margin is 15%.

2.0 Interpretation & Edge Cases

A company can have a great Gross Margin but a terrible Net Profit Margin if they are buried in debt. The interest payments will gut the bottom line. Always follow the margin cascade (Gross -> Operating -> Net) to spot where the money is bleeding out.

3.0 Related Pages

Gross Margin

The top of the margin cascade.

Return on Equity (ROE)

Net Profit Margin is the first of the three multiplier components in the DuPont ROE equations.