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Saturday, July 25, 2009

Calculating Net Profit Margin

From The Hoss's Mouth

Money Magazine Hoss continues his series on financial performance ratio calculations with today's post highlighting Net Profit Margin. This ratio tells the potential investor how much profit a company generates for every $1 of revenue. It is considered to be a measurement of a company's efficiency in converting revenue to profit. Investors normally prefer companies with a high net profit margin. Formula as follows:

Net Profit Margin = Net income/Revenue * 100 %

We will continue using the income statements of Amazon, GM and Google to provide examples.

Amazon's Net Profit Margin :

2006: $190,000/$10,711,000 * 100 = 1.8%

2007: $476,000/$14,835,000 * 100 = 3.2%

2008: $645,000/$19,166,000 * 100 = 3.4%

GM's Net Profit Margin:

2006: -$1,978,000/$207,349,000 * 100 = -9.5%

2007: -$43,297,000/$181,122,000 * 100 = -24%

2008: -$30,860000/$148,979,000 * 100 = -20.7%

Google's Net Profit Margin:

2006: $3,077,446/$10,604,917 * 100 = 29%

2007: $4,203,720/$16,593,986 * 100 = 25.3%

2008: $4,226,858/$13,174,044 * 100 = 32.1%

Once again, as in Money Magazine Hoss's previous financial indicator examples, when we compare the Net Profit Margin of the three companies, Google without question has the best performance.

Stay on Track,

Money Magazine Hoss

Next Hoss Cents Free Financial Money Magazine Post: Calculating Return On Equity
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Related Posts:

Financial Statements Explained

The Balance Sheet

The Income Statement

Calculating Gross profit Margin Calculating Operating Margin

Investment Strategy Dollar Cost Averaging

Market Timing

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