The Net Profit Margin summarises all the profit and loss items involved in your business for a certain period, most commonly a financial year and compares them to sales.  It shows the profit margin after all your costs of delivering your products / services; administration expenses (overheads) and income tax expense.

The Net Profit Margin is a great indicator of:

1.    How efficient the business is;

2.    How well it controls it costs;

3.    Does it properly price its products / services properly;

4.    The tax expense; and

5.    The amount of profit available to the shareholders / owners of the business.

Calculating the Net Profit Margin is usually straight forward as profit and loss statements can usually be generated from all accounting software.

However, the following adjustments may need to be considered:

1.    Depreciation and amortization;

2.    Closing stock;

3.    Work in progress; and

4.    Provisions for annual leave and Long service leave.

If you would like to discuss further please contact us:

McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD

www.mcnamaraandcompany.com.au/contact-us

Phone +61 3 9428 1062

Email admin@mcnamaraandco.com