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How to calculate net profit margin
Meaning of net profit marginHow much net profit margin is enough?Some notes when using net profit margin
Revenue and profit are probably the two most basic indicators that most investors often rely on, to evaluate the performance of a business.
Viewing: What is net profit margin
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Revenue is the soul of the business, representing the size, market share and strength of the business in a given business.
Profit is the final business result, representing the benefit that the business gets after one year of business.
However, if you only look at the absolute numbers of sales and profits, it will be difficult for you to determine whether the business is operating effectively or not.
There are many businesses that summarize at the end of the year with great profits, but compared to the revenue, it is still very modest.
Eg:
Enterprise A has:
Year 1: Revenue 100 million, profit 20 million Year 2: Revenue 200 million, profit 25 million
At first glance, both revenue and profit growth of the business will be very good.
But if you pay close attention in the 2nd year, the business only earns 1.2 dong of profit from 10 dong of revenue…
…Compared to 2 dong profit from 10 dong of revenue in the first year.
That is, the business is earning less profit from the initial 10 dong of revenue.
That is not to mention the financial risks involved, when businesses have to borrow more capital to expand production activities.
To clarify that issue, people often use the Net profit margin – Net profit margin.
What is net profit margin
?Net profit margin or Net profit margin indicates:
How much profit after tax does the business get from a dollar of revenue?
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Along with Gross margin and Operating margin…
…Net profit margin is an important indicator in assessing the profitability of a business.
But first, let’s find out how this metric is calculated.
How to calculate net profit margin
Net profit margin is calculated by:
The result after revaluation of 39.29% stake in IDI helped ASM record another profit of 430 billion dong.
This is a profit that only appears on the books (non-cash) and does not help the business increase 1 coin.
Thereby, ASM’s profit after tax in 2018 is 1,197 billion (+710% YoY), net profit margin is 13.3%.
If excluding other income, ASM’s profit in 2018 will be only 767 billion, net profit margin of 8.5%.
In this case, the company revalued the assets to help the profit grow suddenly, thereby increasing the net profit margin.
Bottom up
Net profit margin is one of the three profitability indicators used a lot in investment analysis.
However, this is also the indicator most easily affected by accounting operations.
Therefore, GoValue encourages you to go into the details in the joint financial statements, instead of just taking the profit after tax figure to calculate this metric.
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Moreover, there is no single indicator that can fully reflect the financial picture of an enterprise.
