NET PROFIT MARGIN (NPM After Tax) Definition

Bookmark and Share

NET PROFIT MARGIN (NPM After Tax) measures profitability as a percentage of revenues after consideration of all revenue and expense, including interest expenses, non-operating items, and income taxes. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved. Generally, if the NPM history is >20% annually, it is an indicator that the firm enjoys a sustainable competitive advantage. If the average NPM is <10%, it usually indicates that the firm is in a highly competitive business. Formula: Net Profit After Tax (EAT + DII + OI) / Net Revenue

Learn new Accounting Terms

ENTERPRISE ZONE is a depressed neighborhood, usually in an urban area, where businesses are given tax incentives and are not subject to some government regulations. These advantages are designed to attract new business in the zone.

SUNDRY ACCOUNT is an account where miscellaneous items are recorded, e.g. infrequent transactions involving customers or suppliers that are not tracked in the normal course of business.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.