Indicator of a company’s efficiency.
A good company has constant strong earnings and cash flow.
The higher the Net Profit Margin, the better it is
Net Profit Margin = net profits/sales
= bottom line/total sales
Net profit margin is the ratio of net profits to sales. It is a good indicator of a company’s efficiency because it takes into account all expenses of the company. A high ratio indicates a more profitable company.
For example, if a company has a 20% profit margin, it means the company has a net income of $.20 for each $1.0 of sales.