Net Profit Margin

The profit margin tells you how much profit a company produces for every $ 1 it generates income or sales. Profit margins depend on the industry, but all else being equal, the company's profit margin, compared with its competitors, the better.

Calculating net profit margin

To calculate the net profit margin of several financial books, websites and resources, says the investor's net profit after tax divided by sales. , Which is a standard and generally accepted, some analysts are likely to add back the minority of the equation, how much money the company before payment of the minority owners' idea. In any case, it is acceptable, although you must be consistent in its calculations. All companies should be compared on the same basis.

Option 1: Net profit after tax of income = net profit margin

Option 2: (Net Income + Minority Interest + Built-tax) of Income

In some cases, lower profit margins is the pricing strategy. Some companies, especially retailers, to be known for its low-cost, high volume. In other cases, a small net profit margin may be represented by a price war, which reduce profits, as the computer industry way back in 2000.

Net profit margin of example

In 2009 Donna Manufacturing sold 100,000 orders $ 5 for every $ 2 Cost of goods sold. He had a $ 150,000 operating costs, and paid £ 52,500 of income tax. What is the net profit margin?

First, we need to find revenue or total sales. If Donna has sold 100,000 widgets at $ 5, it generated $ 500,000 in total income. The Company's cost of goods sold $ 2 per widget, 100,000 patterns $ 2 equals $ 200,000 cost. This leaves a gross profit of $ 300,000 ($ 500k of income - $ 200K sold Cost of goods). From the $ 300,000 gross profit and operating costs of $ 150,000 leaving us with $ 150,000 income before taxes. deprived of the $ 52,500 tax bill, we are left with a net profit of $ 97,500.

Connect this information to our formula, we obtain:
$ 97,500 net profit of $ 500,000 income = net profit margin of 0.195

The answer, 0.195, or 19.5 per cent.] Net profit margin. Keep in mind if you do the calculation of the actual profit (loss) statement, you already have all the variables calculated for you. Your only job is to put them into the formula. (Why did I do that all you are going to work? I just wanted to make sure that you are still things we talked about so far!)