The net profit margin ratio is the percentage of revenue remaining as profit after all expenses, including interest and taxes, are paid. It is calculated by calculated by dividing a company’s net income (earnings after taxes) by its net revenue and multiplying by 100%.
For example, a consulting firm with $2 million in revenue and $220,000 in net income after all expenses and taxes has a net profit margin ratio of 11%. The owner benchmarks this against an industry average of 15% and identifies overhead costs as the area to target for improvement.
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