Net Profit Ratio
Net Profit Ratio also referred to as the Net Profit Margin Ratio, is a profitability ratio that measures the company’s profits to the total amount of money brought into the business. In other words, the net profit margin ratio depicts the relationship between the net profit after taxes and net sales taking place in a business.
In general, companies should aim for a profit ratio of 10% to 20%, keeping an eye on their industry average. In most industries, 10% is considered normal, while 20% is considered high or aboveaverage.
Ideal Ratio
Formula
Net profit Ratio
Net sales
Net profit
100
+
=
x
How to Calculate the Net Profit
Net profit
direct costs
indirect costs
Operating Income
+
=

How to Calculate the Net Sales
Net sales
credit sales
sales returns
cash sales
+
=
