Net Profit Margin is a profitability ratio that calculates the percentage of profit the company produces from its revenue. In other words, what percentage of the revenue is actual profits left for the company after all of the expenses have been deducted.
Net profit margin is calculated as ratio of the net profit divided by total revenue. The formula is:
Net Profit Margin (%) = Net Profit / Revenue.
Since net profit margin is a way to measure company profitability, higher net profit margin number is considered better. Higher profit margin means that the company is good at controlling its operating expenses and is able to sell its goods or services at a price significantly higher than its costs.
|VRSN Verisign Inc||63.3%||$22.99B||Software - Infrastructure|
|V Visa Inc||51.4%||$379.48B||Credit Services|
|PSA Public Storage||51%||$37.22B||REIT - Industrial|
|EBAY Ebay Inc||46.9%||$35.47B||Internet Retail|
|CME Cme Group Inc||46.4%||$58.22B||Financial Data & Stock Exchanges|
Net profit margin is used by investors to calculate the profitability of different companies. A company with higher profit margins might be an indicator that the company has good and efficient management that is able to lower its costs of operations. It can also be an indication of company’s competitive advantage and strong pricing strategies. Of course the net profit margin ratio can significantly differ between companies in different industries. So analysing profit margin should always be mindful of the capital structure of the business as well as the industry the business is operating. When looking at company’s net profit margins we should also look for performance of the margins over time. By tracking increases and decreases in the net profit margin, an analysts can estimate whether the business is improving its efficiency over time.