what is net profit margin 
net profit margin or simply net margin measures how much net income or profit a company generates as a percentage of its revenue it is the ratio of net profits to revenues for a company or business segment net profit margin is typically expressed as a percentage but can also be represented in decimal form the net profit margin illustrates how much of each dollar in revenue collected by a company translates into profit net profit margin is determined by dividing a company s net income by its revenue and multiplying the result by 100 the net profit margin formula is described in greater detail later in this story along with hypothetical and real examples understanding net profit marginnet profit margin is one of the most important indicators of a company s financial health by tracking increases and decreases in its net profit margin a company can assess whether current practices are working and forecast profits based on revenues because companies express net profit margin as a percentage rather than a dollar amount it is possible to compare the profitability of two or more businesses regardless of size this metric includes all factors in a company s operations including investors can assess if a company s management is generating enough profit from its sales and whether operating costs and overhead costs are being contained for example a company can have growing revenue but if its operating costs are increasing faster than revenue then its net profit margin will shrink ideally investors want to see a track record of expanding margins meaning that the net profit margin is rising over time most publicly traded companies report their net profit margins both quarterly during earnings releases and in their annual reports companies that can expand their net margins over time are generally rewarded with share price growth as share price growth is typically highly correlated with earnings growth formula and calculation for net profit marginnet profit margin r c o g s e i t r 100 net income r 100 where r revenue c o g s the cost of goods sold e operating and other expenses i interest t taxes begin aligned text net profit margin frac r cogs e i t r 100 frac text net income r 100 textbf where r text revenue cogs text the cost of goods sold e text operating and other expenses i text interest t text taxes end aligned net profit marginwhere rcogseit rr cogs e i t 100 rnet income 100 revenue the cost of goods sold operating and other expenses interest taxes 