1. What is the Net Margin Ratio?

The Net Margin Ratio (NMR) is a key profitability metric that shows what percentage of revenue remains as net profit after all expenses are deducted. It measures how effectively a company converts revenue into actual profit.

2. How Does the Calculator Work?

The calculator uses the Net Margin Ratio formula:

Where:

• \( NMR \) — Net Margin Ratio (%)
• \( \text{Net Profit} \) — Total profit after all expenses (currency)
• \( \text{Revenue} \) — Total income/sales (currency)

Explanation: The ratio expresses net profit as a percentage of total revenue, showing how much profit is generated from each dollar of sales.

3. Importance of Net Margin Ratio

Details: Net Margin Ratio is crucial for assessing a company's financial health, profitability efficiency, and operational effectiveness. It helps investors, managers, and analysts compare performance across companies and industries.

4. Using the Calculator

Tips: Enter net profit and revenue in the same currency units. Both values must be positive, and revenue cannot be zero. The result shows the percentage of revenue that represents actual profit.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Net Margin Ratio?
A: It varies by industry, but generally 10-20% is considered good, while above 20% is excellent. Negative margins indicate losses.

Q2: How does NMR differ from gross margin?
A: Gross margin only considers cost of goods sold, while net margin includes ALL expenses (operating, interest, taxes, etc.).

Q3: Why might NMR be negative?
A: Negative NMR occurs when expenses exceed revenue, indicating the company is operating at a loss.

Q4: How often should NMR be calculated?
A: Typically calculated quarterly and annually for financial reporting and analysis purposes.

Q5: Can NMR be above 100%?
A: No, since net profit cannot exceed total revenue in normal business operations. The maximum possible is 100%.