What does Net Profit Margin mean?

Net Profit shows how much money your business made after paying all of its expenses.

How it's calculated

This metric subtracts your total expenses from your revenue to determine your net profit (also known as “net income”) and then divides the result by your revenue to produce a percentage.

What's better?

Higher

What it means

This is what people mean when they talk about “the bottom line” of your business. Net profit is indeed the last line at the bottom of the profit and loss statement. It shows how much money your business made after paying all of its expenses.

Keep in mind that profit numbers can be misleading. Because income taxes are typically assessed against a company’s net profit, many companies are careful not to maximize their profit. They may choose to reinvest extra revenue in hiring, advertising, equipment, or other expenses that can help generate future revenue — without increasing their tax bill.

 

(Source: LivePlan.com)