Net Tax profit Ratio is a type of

**Profitability Ratio**that determines the**relative relation between Net Profit and Net Sales.**It indicates the Net Profit in Net Sales.Net Profit Ratio = Net Profit / Net Sales

**Where,****Net Profit = Net Sales – (Cost of Goods Sold + Operating Expenses + Depreciation /Amortization + Interest Expenses + Tax paid)**- And
**Net Sales is the Total Revenue from Sales.** __Net Profit Ratio multiplied by 100 provides the Net Profit Margin in percentage terms.__

### Significance and Interpretation

**Net Profit Margin**of a Company is the**narrowest measure of profit as compared to Gross Profit Ratio, Operating Profit Ratio, and Predix Profit Ratio.**Net Profit Margin considers all necessary expenses incurred by the company including Depreciation, Amortization, Interest Expenses, and Taxes.**Net Profit Margin of a company is always less than Gross Profit Ratio, Operating Profit Ratio, and Pretax Profit Ratio due to the addition of the tax element.****Gross Profit Ratio > Operating Profit Ratio > Pretax Profit Ratio > Net Profit Ratio**

### Examples

**Example 1: Given below are few details of M/S XYZ Ltd., use them an calculate the Net Profit Ratio for M/S XYZ Ltd.**

Particulars | Amount (in Rs.) |
---|---|

Revenue from Sales (Cash) | 250000.00 |

Revenue from Sales (Credit) | 25000.00 |

Cost of Labour | 45000.00 |

Material Cost | 45000.00 |

Salary Expense | 90000.00 |

Rent of Premises | 40000.00 |

Insurance Expenses | 15000.00 |

Depreciation | 15000.00 |

Interest Expenses | 5000.00 |

Taxes Paid @30% on PBT | 6000.00 |

**Solution:**- Cost of Goods Sold = Cost of Labour + Material Cost = Rs. 90000
- Operating Expenses = Salary Expense + Rent of Premises + Insurance Expenses = Rs. 145000
- Net Sales Revenue = Cash Revenue from Sales + Credit Revenue from Sales = Rs. 275000
- PBT or Profit Before Tax = Net Sales – (Cost of Goods Sold + Operating Expenses + Depreciation/Amortization + Interest Expense)
- = 275000 - (90000 + 145000 + 15000 + 5000) = Rs. 20000.00
- Net Profit = PBT – Tax = 20000 – 6000 = Rs. 14000
- Net Profit Ratio = Net Profit / Net Sales = 14000 / 275000 = 14 / 275
**Hence, Net Profit Ratio = 14 /275 or 0.0509 or 5.09%**