Net profit margin is a financial ratio that measures the percentage of profit a company produces from its total revenue. It is expressed as a percentage and indicates how much net income or profit is generated for every dollar of revenue earned. The formula for calculating net profit margin is net profit divided by revenue, expressed as a percentage. Net profit is calculated by deducting all company expenses from its total revenue.

Net profit margin is an important measure of a companys overall profitability. It is used to evaluate a companys pricing strategies and how well it controls costs. A higher net profit margin means that more of every dollar in sales is kept as profit. However, a low profit margin indicates a low margin of safety and a higher risk that a decline in sales will erase profits and result in a net loss or a negative margin.

Net profit margin is used mostly for internal comparison, as it is difficult to accurately compare the net profit ratio for different entities. Individual businesses operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning.

To calculate net profit margin, take the net income and divide it by sales (or revenue), and then multiply the result by 100 to convert the net margin ratio into a percentage. For example, if a company generates $1 million of revenue and $100,000 of net income during a reporting period, the net profit margin is 10% .