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
INSPECT / INSPECTION, during an audit, is to scrutinize or critically examine a document. As part of a CPA firm's quality control system, a procedure to monitor the effectiveness of the system.
PAY CYCLE is a set of rules that defines the criteria by which scheduled payments are selected for payment creation, e.g., payroll may be on a weekly, bi-weekly, or monthly pay cycle.
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