In around two minutes you will know what is Net Profit Margin. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

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Net Profit Margin is the financial ratio that estimates the profitability of a business by taking into consideration net income and revenue.

Besides net profit margin, there are also gross margin, operating margin, and pretax margin. And if you are not sure what some of them mean, feel free to watch my previous videos.

The formula for net profit margin is extremely simple. And it is net income divided by revenue. The result is the percentage value. Both components of this formula can be found on the income statement.

Let’s say we have Company A and it made $1 million in revenue of which $100,000 is net income. Then its net profit margin is simply $100,000 divided by $1 million, which equals 10%.

It means that for every dollar of revenue Company A has made, it was able to retain 10 cents of net income.

Investors obviously want to see net profit margin as high as possible. Because it means that the management of a company was able to minimize all the costs while maximizing the income of the company.

Plus, net profit margin allows to compare the profitability of companies of different sizes.

But be careful and only compare net profit margins of companies within the same industry. And the reason for this is because different industries might have different acceptable levels of financial health.

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*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

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