Net Profit Ratio for Beginners. The One Ratio You Must Master!

In this short vide we demonstrate the most important profitability ratio called the "Net Profit Margin Ration" and we explain how it is calculated and why!

The way to calculate this ratio is by diving the "bottom figure" which is the Net Profit (the after tax profit) to the "Top Figure" which is the Revenue or Turnover of the Company.

This ratio explains that for each Euro of Turnover you "take home" what is left after multiplying this turnover to the ratio. As a result we explicitly state that each business owner should be in a position to know how much profits they can take home early in a year as they know this ratio beforehand. For more accurate results and average Net Profit Ratio should be used (i.e the last 3 years net profit ratio / 3 = Realistic Net Profit Ratio that should be used for Strategic Planing.

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