Operating Profit Margin formula = Operating Profit / Net Sales * 100; Or, Operating Margin = $170,000 / $510,000 * 100 = 1/3 * 100 = 33.33%. Nonetheless, it represents only 7.0% of sales; while in Year 1, it represents 10.5%. The ratio is considered as okay so it shows that the company is good at changing sales into profit but still the company need to work on its sales and inventories. The net margin, by contrast, is only 14.8%, the sum of $12,124 of net income divided by $82,108 in … Net profit margin is often used to compare companies within the same industry in a process known as "margin analysis." Net profit margin (also called profit margin) is the most basic profitability ratio that measures the percentage of net income of an entity to its net sales. Colgate’s Operating Profit = EBIT / Net Sales. Net Profit Margin = Net Income / Revenue x 100 . Thus, its net profit margin is: ($20,000 net profit ÷ $160,000 net sales) x 100 = 12.5% net profit margin. Colgate Example. Net profit margin is used to compare profitability of competitors in the same industry. Net profit margin tells you how well a company is able to achieve profits from sales (as well as manage its operating expenses). Terms Similar to Net Profit Margin. Net Profit Margin = 3578.11 120229.82 x 100 = 2.97% Interpretation: The company receives a profit of 2.9% after paying the taxes. Net Profit Margin ratio is a key performance indicator of … For example, a net profit margin of 35% means that every $1 sale contributes 35 cents towards the net profits of the business. The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. During that time, it had sales of $160,000. Net profit margin is a percentage of sales, not an absolute number. To generate the profit margin, you compare this number to the net sales, the amount of money you brought in over the period. The net profit ratio can be viewed as a gauge of both business efficiency and profitability. If we have a high Net margin, it clearly indicates the company is making high after-tax profits on each dollar of Sales. Net Profit Margin Interpretation High Net Profit Margin. Interpretation & Analysis. In 2018, the gross margin is 62%, the sum of $50,907 divided by $82,108. When a company’s profit margin ratio is low, it’s usually an indication that a firm’s management has allowed expenses to climb too high. Below is the snapshot of Colgate’s Income Statement from 2007 to 2015. Example of Net Profit Margin. Companies may have a high PAT margin because they may be highly profitable at the Operating profit margin level itself, resulting in a high Net margin. Net profit margin (Y1) = 98 / 936 = 10.5% Net profit margin (Y2) = 103 / 1,468 = 7.0%. 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