HOMEPAGE

Net Profit Margin

Definition

Net Profit Margin measures how much of each dollar of revenue becomes net income after all expenses, interest, and taxes.

$$\text{Net Profit Margin}=\frac{\text{Net Income}}{\text{Revenue}}$$

Why It Matters

• Shows overall profitability after all costs.
• Indicates pricing power, cost control, and operational efficiency.
• Core driver of ROE in the DuPont framework.
• Useful for comparing profitability across companies and industries.

How to Interpret It

• Higher Margin: Strong profitability, efficient operations, or premium pricing.
• Lower Margin: Higher costs, competitive pressure, or weak pricing power.
• Industry Context: Retail has low margins; software and pharmaceuticals often have high margins.

Example

A company earns $80 million in net income on $1 billion in revenue:

$$\frac{80}{\mathrm{1,000}}=0.08=8\mathrm{\%}$$

A Net Profit Margin of 8% means the company keeps 8 cents of profit per dollar of sales.