What Does Net Profit Margin Mean?

Question

What Does Net Profit Margin Mean?

2 Answers

Answer Question

Answer 1

Net profit margin is net profit to sales ratiothat is net profit/sales *100=B%IT EXPRESSES THE RELATIONSHIP BETWEEN THE NET PROFIT AND THE TURNOVER OF THE BUSINESS.a fall in net profit can be attributed to the following factors1) A fall in gross profit margin2) an increase in cost of operation leading to an increase in operating expenses3) abnormal charges for bad debts resulting from the bankruptcy of a major debtor4)a permanent diminution in the value of investment leading to a fall in income5)abnormal charges for depreciation

Answer 2

The word net profit margin is a measure of profitability of a company after the taxes have been paid. It is calculated using the formula profit margin = net income/revenue = net profit/sales revenue. It is written as a percentage or a number. It is also known as the net profit ratio.

It is mostly used for the purpose internal comparison. It is difficult to make an accurate comparison of the net profit ratio for different organisations. The operation and financing arrangements for individual businesses are so different from each other that they are bound to have different levels of expenditure. Comparison between them is not only impossible but also meaningless.

The net profit margin is the indicator of the pricing policies of a company and its ability to control the costs. The differences in the competitive strategy and the profit mix cause the net profit margin to vary among different companies.