What is Net Profit Margin?

money Net profit margin is used to find out the proportion of money left over from revenue after subtracting all the expenses of the company like staff costs, rental costs, advertising costs, research and development costs and taxes. In other words, it is a measure of how much out of every dollar of sales a company actually keeps in earnings.

To calculate net profit margin, you have to first subtract all the expenses from the revenue. This is the net profit. You then take the net profit and divide it by the revenue, before converting it into a percentage.

For example, in 2012, Super Group Limited (SGX: S10) had $519.3 million in revenue and $440.3 million in total expenses. The net profit is $79.0 million. The net profit margin is thus 15.2%. This also means that for every $1 of revenue, Super Group had $0.0152 as net profit or earnings.

Net profit margin can be used to compare a company with its competitors within the same industry. A higher profit margin over its competitors equates to a more profitable company that has better control over its costs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.