Net Income Margin (NIM) is a ratio that compares net income to sales and sums up how effectively managers are running a business; more specifically, how good a company is at converting revenue into profits and how effective a company is at cost control.
Net Income Margin = Net income x 100 ÷ Total Sales Revenue.
Total Sales Revenue = total sales revenue and other revenue for a particular period.
A high net profit margin indicates a profitable company that is effective at converting revenue into actual profit. It is often recommend that when considering purchasing a stock, the NIM should be 20% above the industry average
A company’s total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses.
Net Income = Total Revenue – Cost of inventory – Operating Expenses – Interest Expenses – Taxes
- Revenue is the amount of money a company is allowed to recognize from the sale of its goods, services, or intellectual property.
- Interest expense is the cost of debt that has occurred during a specified period of time.