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 above-average. 

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

+

=

-