Net Profit Margin Ratio Calculator

Calculate the net profit margin ratio to assess your company’s profitability relative to total revenue. This key financial metric shows how much profit is generated per dollar of sales.

Financial Details
Total Revenue
Total income from sales or services (e.g., $1,000,000)
Total Expenses
All operating and non-operating expenses (e.g., $900,000)
Please enter a valid positive total revenue to calculate the net profit margin.
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Result

0% 5% Low 20% Healthy 50% High

Detailed Steps

Visual Representation

Formula

Net Profit Margin Definition

The net profit margin is calculated by dividing net profit by total revenue, then multiplying by 100 to express it as a percentage:

Net Profit Margin = (Net Profit ÷ Total Revenue) × 100%

Net Profit Definition

Net profit is calculated by subtracting all company expenses from total revenue:

Net Profit = Total Revenue − Total Expenses

Interpretation

  • Margin < 5%: Low – Indicates low profitability, common in low-margin industries.
  • Margin 5%–20%: Healthy – Represents good profitability for many businesses.
  • Margin > 20%: High – Indicates excellent profitability, typical for high-margin industries.

How to Use the Net Profit Margin Ratio Calculator

  1. Enter the total revenue of the company in the “Financial Details” section (e.g., $1,000,000).
  2. Enter the total expenses of the company (e.g., $900,000).
  3. Click the “Calculate” button to determine the net profit margin.
  4. View your results in your chosen display format, showing the margin percentage and profitability level.

Frequently Asked Questions (FAQs)

What is the net profit margin ratio?

The net profit margin ratio is a financial metric that measures a company’s profitability by expressing net profit as a percentage of total revenue. It shows how much profit is generated per dollar of sales.

How do you calculate the net profit margin ratio?

To calculate the net profit margin ratio:

  1. Determine the total revenue (e.g., $1,000,000).
  2. Determine the total expenses (e.g., $900,000).
  3. Calculate net profit: Net Profit = Total Revenue − Total Expenses (e.g., 1,000,000 − 900,000 = $100,000).
  4. Divide net profit by total revenue and multiply by 100: (Net Profit ÷ Total Revenue) × 100%.

Example: Net Profit Margin = (100,000 ÷ 1,000,000) × 100 = 10%.

What is a net profit margin calculator?

A net profit margin calculator is a tool that computes a company’s profitability by dividing net profit by total revenue and expressing the result as a percentage. It provides a simple way to assess how much profit is generated from each dollar of sales.

What is a good net profit margin ratio?

A good net profit margin depends on the industry:

  • <5%: Low, common in industries with high costs or low margins (e.g., retail).
  • 5%–20%: Healthy, indicating good profitability for most businesses.
  • >20%: High, typical for high-margin industries (e.g., software or luxury goods).

Profitability goals should be tailored to your industry and business model.

How does the net profit margin differ from other profit margins?

The net profit margin accounts for all expenses (operating, non-operating, taxes, interest), unlike other margins:

  • Gross Profit Margin: Considers only cost of goods sold, ignoring other expenses.
  • Operating Profit Margin: Includes operating expenses but excludes taxes and interest.
  • Net Profit Margin: Includes all expenses, providing the most comprehensive profitability measure.

Why is the net profit margin important?

The net profit margin is important because:

  • It measures overall profitability and efficiency.
  • It allows comparison across companies or industries.
  • It helps identify cost management issues or revenue opportunities.
  • It informs investors about financial health and sustainability.