Net Profit Margin Ratio indicates the proportion of sales revenue that translates into net profit. For example, a net profit margin of 35% means that every $1 sale contributes 35 cents towards the net profits of the business.
Net Profit Margin ratio is a key performance indicator of the profitability of an enterprise. It is one of the two elements that determine the return on assets, the other element being the sales turnover ratio.
Measuring the trend of NP margin over several periods in comparison to industry benchmarks is crucial for identifying performance gaps that could be overcome to improve the profitability of business in the future.