Net Profit Margin (NPM)

Date created: Dec 16, 2020  •   Last updated: Feb 24, 2022

What is Net Profit Margin?

Net Profit Margin shows net profit as a percentage of total revenue. It gives the net profit earned for every dollar of revenue generated and is a good indicator of profitability and operating expense management.

Alternate names: Net Margin

Net Profit Margin Formula

ƒ Sum(Net Profit) / Sum(Revenue)

How to calculate Net Profit Margin

In one year, a company generates $100,000 revenue and $10,000 net profit. The net profit margin in this scenario is 10%.

Start tracking your Net Profit Margin data

Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data. Choose one of the following available services to start tracking your Net Profit Margin instantly.

Klipfolio dashboard image

How to visualize Net Profit Margin?

When visualizing your Net Profit Margin, it is optimal to view this number as a line chart or summary chart, either tracking changes over time or comparing current values to the past.

Net Profit Margin visualization examples

klipfolio image

Net Profit Margin

Line Chart

Here's an example of how to visualize your Net Profit Margin data in a line chart over time.
klipfolio image

Net Profit Margin

36%

arrow-right icon

3.22

vs previous period

Summary Chart

Here's an example of how to visualize your current Net Profit Margin data in comparison to a previous time period or date range.
arrow-right icon
arrow-right icon

Net Profit Margin

Line Chart

Here's an example of how to visualize your Net Profit Margin data in a line chart over time.

More about Net Profit Margin

Revenue measures the income generated by a business, but it does not calculate how much profit is left over after deducting operating expenses, taxes, and other costs of running a business. Net profit gives a better picture of how much profit is retained after subtracting operating expenses from revenue. The percentage of profit retained from revenue is known as the Net Profit Margin.

Low Net Profit Margin is not necessarily negative or a reason not to invest in a company, especially when that company is generating high revenue. However, it is possible for low Net Margin to indicate hidden problems such as excessive expenses and poor management practices. It is essentially profit available to pay debts and distribute to shareholders, or retain as working capital.

There are multiple financial ratios, including gross margin and EBITDA margin, and each of these numbers have vastly different meanings and values. Net Profit Margin, also known as Net Margin, provides the most complete picture because it includes all expenses in the calculation, whereas other ratios focus on select expenses and are used for specific purposes.

Recommended resources related to Net Profit Margin

What is a good profit margin?