NET PROFIT MARGIN (NPM Pre-Tax) Definition

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NET PROFIT MARGIN (NPM Pre-Tax) incorporates all of the expenses associated with ordinary business (excluding taxes) thus is a measure of the overall operating efficiency of the firm prior to any tax considerations which may mask performance. 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. Formula: Net Earnings / Net Revenue

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PERFORMANCE BUDGET is a budget format that relates the input of resources and the output of services for each organizational unit individually. Sometimes used synonymously with program budget.

RESIDUAL INCOME is income from efforts which continue to generate revenue over time without requiring any additional effort (e.g., a stream of future royalty payments from a book).

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