NET Profit Margin

What is NET Profit Margin?

NET Profit Margin is the ratio that represents how much is left in a given company's pocket after all sales have been made and expenses, taxes and interests are paid. Thus, it is a percentage calculation of the Net Income over the total revenue generated from a business. This number represents the profitability ratio of a given company - for each dolar made in revenue, what would be the percentage that stays in the companies after deducting COGS, Expenses, Taxes and Interests.

Last but not least, this statement result could be positive or negative, representing how healthy is the operation of a business. However, as any kind of business KPI, this should not be evaluated alone, but together with other factors - such as EBITDA, LTV, CAC, WACC and other factors depending on the business strategy and maturity.

How to calculate NET Profit?

Calculating NET Profit Margin is easy if you already know how to calculate your NET Income (which is the same as NET Profit)

Net Profit Margins = Net Income / Revenue * 100


Net Income is the result from the deducting of COGS, Expenses, Taxes and Interests from the total revenue; and Revenue is the consolidation of the  total revenue made from all sales channels related to the expenses used to calculate NET Income
EICOM Institute also recommends that you take a look at this article from Investopedia to learn more.

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