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Finance Dictionary and Glossary of Investment Terms
net profit margin
Definition 1.
Net profit divided by net revenues, often expressed as a percentage. This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions. However, the net profit margins are also a good way to to compare companies in different industries in order to gauge which industries are relatively more profitable. also called net margin.
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Definition 2.
The latest 12 months'' net income from total operations divided by the latest 12 months'' sales. A measure of profitability, net profit margin varies widely by industry. In the supermarket business, for instance, enormous sales are generated to produce relatively modest profits. Software firms and drug companies often show the opposite pattern. The five-year average is also given.
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