Key Performance Indicators For Dummies by Bernard Marr

Author:Bernard Marr
Language: eng
Format: epub, azw3
ISBN: 9781118913246
Publisher: Wiley
Published: 2015-01-20T04:07:14+00:00

Net profit margin

This metric sheds light on how well your business is run. It helps to illustrate how efficient the business is and how adept it is at controlling costs. A low net profit means that your business has a lower tolerance to changes such as lower sales or increased costs.

Net profit margin is particularly useful when comparing performance over time. Plus it is often used by investors to assess the relative merits of a business. For example, say someone was looking to invest. They would look at profits. Suppose Company A had a net profit of $523 million on sales of $620 million and Company B earned $670 million on sales of $990 million. If the investor only looked at net profit alone Company B made $147 million more profit than Company B. But if they looked more closely they would see that Company A’s net profit margin is 84.35 per cent ($523 m divided by $620 million multiplied by 100) and Company B’s is 67.67 per cent ($670 m divided by $990 m multiplied by 100). In other words Company A generates 84 cents for each dollar of sales, while Company B only generates 68 cents for every dollar of sales. So company A is more profitable than company B.

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