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Net Profit Margin: Definition and Meaning
Definition
Net profit margin is net income divided by revenue, often expressed as a percentage.
Why It Matters
This measure helps show how much profit remains after all expenses for each dollar of revenue. It can help management compare performance across periods, business units, or companies, though comparisons should account for differences in industry, business model, capital structure, and accounting policies.
A declining net profit margin may prompt questions about pricing, direct costs, overhead, debt costs, taxes, efficiency, or revenue mix.
Example
Net income of $10,000 on revenue of $100,000 equals a net profit margin of 10 percent.
Related Terms
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