The net profit margin helps us understand how much of a company’s revenues are kept as net income. The net profit margin is generally expressed as a percentage. Both net income and sales can be found on a company’s income statement.
In some cases, in a mature market, a decline in the company’s profit margin can represent a price war, which is lowering profits. A decline in profit margins can also be a pricing strategy in order for the company to increase its market share.
Formula for Dividend Payout Ratio
\[Net\,profit\,margin = \frac{{Net\,income}}{{Sales}}*100\]
Example
Reliance Jio has net income of Rs.9,475 and total sales of Rs.2,10,000. This gives a net profit margin of 4.51%, which means that for every Rs.100 of sales, Rs.4.51 of net income is generated.
