What is "Net Profit Margin" meaning?

Net profit margin is a financial ratio that shows how much of each dollar of revenue results in net income. It is calculated by dividing net profit by total revenue and expressing the result as a percentage. This metric helps businesses understand how efficiently they are converting revenue into actual profit.

Example

“In their quarterly review, the startup focused on improving their net profit margin to attract investors and show long-term sustainability.”

How is "Net Profit Margin" used in business?

Net profit margin is used by executives, analysts, and investors to evaluate a company's profitability. A higher margin suggests strong cost control and efficient operations, while a lower margin may signal issues with pricing, costs, or business strategy.

Pro Tip

Track net profit margin over time to identify trends and areas where operational costs can be reduced without compromising revenue growth.

Related Terms

Gross Margin, Operating Margin, Return on Investment (ROI), Net Profit