FINANCIAL DICTIONARY:Net Profit Margin

Net Profit Margin

Net profit margin, or simply net margin, is a key metric that expresses the profitability of a company or business relative to its total revenue. It’s calculated by dividing the net profit (or net income) of the company by its total revenue and then multiplying by 100 to express the result as a percentage. Net profit is what remains after accounting for all expenses, including operating costs, interest and taxes. It’s the percentage of a company’s revenue that it keeps as a profit.

The net profit margin is an important financial indicator as it provides insights into a company’s ability to efficiently manage its costs and generate profit from its core business activities. A higher net profit margin indicates that the company is effectively controlling its expenses and operating profitably, while a lower margin might suggest inefficiencies or higher operating costs.

While net profit margin is a useful metric, it does have some limitations. For example, it’s not good when comparing companies in different sectors. Additionally, it can be influenced by one-off situations like the sale of an asset, which could temporarily boost profits. It’s best to look at several ratios and financial metrics when analyzing the profitability of a company.

Contact your banker if you’d like to learn more or have any questions.

ABOUT THE CONTRIBUTOR: JAMIE LOUIE-SMITH

Jamie worked in commercial banking for 17 years before becoming the chief financial officer for a nonprofit drug and alcohol addiction treatment center. Her expertise in the financial industry, passion for helping others and varied years of experience give her the ability to work well with a diverse client base. Returning to the industry as a commercial banking officer, she specializes in lending to nonprofits, medical/dental professionals and other community-based businesses.