The net profit ratio is the percentage of sales revenue retained by the company after payment of operating expenses, interest expenses, and income taxes. It is an index of performance that can be used to compare the company to others in the same industry.
This ratio is calculated by the following formula:
BDCC’s net profit ratios for the three years are calculated as follows:
For each $1 of sales in 2021, BDCC earned $0.04 of net income. The net profit ratio has been relatively stable but needs to be compared with industry or competitors’ averages for a better perspective.
Recall that revenues are generated from a business’s asset holdings. The financial strength and success of a corporation depends on the efficient use of these assets. An analysis of asset investment decisions can be made by calculating several ratios, and is discussed next.
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