What Is Net Profit Margin?
Calculation for Net Profit Margin
- On the income statement, subtract the cost of goods sold, operating expenses, other expenses, interest (on debt), and taxes from revenue.
- Divide the result by revenue.
- Convert the figure to a percentage by multiplying it by 100.
- Alternatively, locate net income from the bottom line of the income statement and divide the figure by revenue. Convert the figure to a percentage by multiplying it by 100.
What Does Net Profit Margin Tell You?
- Total revenue
- All outgoing cash flow
- Additional income streams
- COGS or cost of goods sold and other operational expenses
- Debt payments including interest paid
- Investment income and income from secondary operations
- One-time payments for unusual events such as lawsuits and taxes
Net vs. Gross Profit Margin
Limitations of Net Profit Margin
- Revenue: $100,000
- Operating costs: $20,000
- COGS or cost of goods sold: $10,000
- Tax liability: $14,000
- Net profits: $56,000
Real World Example
- Net sales or revenue was $84.310 billion (highlighted in blue).
- Net income was $19.965 billion for the period (highlighted in green).
- Apple's net profit margin is calculated by dividing its net income of $19.965 billion by its total net sales of $84.310 billion. Total net sales are used as the top line for companies that have experience customer returns of their merchandise, which are deducted from total revenue.
- Apple's net profit margin was 23% or ($19.965 billion ÷ $84.310 billion) x 100.