Using the given financial data (total sales and revenue $44,000 and net income $18,833), what is the net profit margin ratio? Round to 1 decimal place.
Net sales (of goods) 18,693
Total sales and revenue 44,000
Cost of goods sold 14,052
Net income 18,833
Quick assets 90,924
Current assets 95,568
Total assets 120,268
Current liabilities 875
Total liabilities 875
Total equity 119,393
Net profit margin ratio $= \dfrac{\text{Net income}}{\text{Total sales and revenue}} = \dfrac{18{,}833}{44{,}000} = 0.428$, or 42.8% (rounded to 1 decimal place).
What you are trying to measure
Net profit margin tells you how much net income the company earns from each dollar of sales (after all expenses).
Pick the correct numbers from the data
Because the company has both service revenue and sales of goods, use Total sales and revenue as the denominator.
- Net income = $18{,}833$
- Total sales and revenue = $44{,}000$
Compute the ratio and convert to a percent
$$\text{Net profit margin} = \frac{18{,}833}{44{,}000} = 0.4280$$ Convert to percent: $$0.4280 \times 100 = 42.80\%$$ Rounded to 1 decimal place: $$\boxed{42.8\%}$$
Quick reasonableness check
A $42.8\%$ margin means the company keeps about $0.428$ of profit for every $1.00$ of total revenue, which matches the calculation.
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