Net Profit Percentage Calculator
Analyze your business profitability by calculating your bottom-line margin.
How to Calculate Net Profit Percentage
The net profit percentage (also known as net profit margin) is a critical financial ratio used to measure the percentage of revenue that remains as profit after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's total revenue.
To calculate net profit percentage manually, use the following formula:
Formula: (Net Profit ÷ Total Revenue) × 100
Where Net Profit is calculated as: Total Revenue - (COGS + Operating Expenses + Interest + Taxes)
Step-by-Step Example
Imagine a small retail business with the following monthly figures:
- Total Revenue: $10,000
- Cost of Goods Sold (COGS): $4,000
- Operating Expenses (Rent, Utilities, Payroll): $3,000
- Taxes and Interest: $500
Step 1: Calculate Total Expenses
$4,000 + $3,000 + $500 = $7,500
Step 2: Calculate Net Profit
$10,000 – $7,500 = $2,500
Step 3: Calculate Net Profit Percentage
($2,500 ÷ $10,000) × 100 = 25%
Why Net Profit Margin Matters
Unlike gross profit, which only considers the cost of producing goods, the net profit percentage gives you a bird's-eye view of your entire business efficiency. A high net profit margin indicates that a company is priced correctly and is exercising good cost control. It is a primary indicator used by investors and lenders to determine the financial health of a business.