Hoss Cents Free Financial Money Magazine: Calculating Net Profit Margin

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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.

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Money Magazine Hoss

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