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What is Net Profit Ratio? What does it show?
Net Profit Ratio indicates that portion of the sales which is left out with the owners after considering all types of expenses and costs either operating or non operating or normal or abnormal. It is used to measure the overall profitability and hence it is very useful proprietors. It also indicates the firm’s capacity to face adverse economic conditions such as low demand, price competition etc. It is expressed in percentage. A higher net profit ratio will be desirable as it indicates higher profitability of the business.
Formula to calculate Net Profit Ratio = (Net profit after taxes/ Net Sales) X 100
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