How do you calculate a stock's net profit margin ratio?

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by sibyl , in category: Stocks and Equities , 9 months ago

How do you calculate a stock's net profit margin ratio?

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1 answer

by elizabeth , 9 months ago

@sibyl 

To calculate the net profit margin ratio of a stock, you need to derive certain financial information from the company's financial statements. Here's how to do it:

  1. Obtain the company's net profit: Find the net profit value on the income statement, which is typically located towards the bottom.
  2. Calculate the revenue: Determine the total revenue earned by the company, also known as sales or turnover, found at the top of the income statement.
  3. Calculate the net profit margin ratio: Divide the net profit by the revenue and multiply the result by 100 to get the net profit margin ratio as a percentage.


Here is the formula: Net Profit Margin Ratio = (Net Profit / Revenue) * 100


For example, if a company has a net profit of $500,000 and revenue of $2,000,000, the net profit margin ratio would be: Net Profit Margin Ratio = (500,000 / 2,000,000) * 100 = 25%


This net profit margin ratio indicates that the company's net profit is 25% of its total revenue.