Net Profit Margin Ratio

A printable cheatsheet with calculations
and notes

Download FREE Ratio Diagram

Instead of calculating each ratio individually

Let our ratio tool instantly calculate your ratios. Input your financial data once and get multiple results.
START AUTO CALCULATION

Net Profit Margin Ratio

Net Profit Margin Ratio =

Net income

Sales

AKA: Bottom line ratio

INTERPRETATION

The net profit margin shows how much of every $1 in sales is retained as profit after accounting for all the costs involved in generating those revenues.

Business owners, managers, and others use this ratio as an indication of the overall health of a company and its ability to generate profit and control costs.

Note: expanded calculation

Sales revenue minus all expenses divided by sales revenue, multiplied by 100% to express as a percentage.

EXAMPLE

M&M company reported a net profit margin of 35% during the last quarter, meaning that it keeps a profit of 0.35 cents for every $1 of sales generated.

BENCHMARK: HA, PG, ROT

It’s helpful to compare the net profit margin to the company’s history (past performance) and its peers.

A “good” net profit margin varies by industry. Still, a general rule of thumb is that a 20% or higher margin means the company is efficient at turning sales into actual profit, a 10% margin is average, and a 5% margin is low. And a negative net profit margin means the company was unprofitable.

Net Profit Margin Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.