Net income divided by net sales is the Profit margin ratio.
Profit margin, which is calculated by dividing income by revenues, effectively measures how profitable a firm or commercial activity is.
Profit margin, expressed as a percentage, shows how many cents of profit were made for every dollar of sales.
Although there are other kinds of profit margins, the net profit margin is the most important and widely used one.
This is the company's bottom line after all other costs, such as taxes and one-time expenses, have been subtracted from revenue.
Creditors, investors, and businesses themselves utilize profit margins as gauges of a company's financial stability, management aptitude, and potential for expansion.
When comparing the numbers for various businesses, care should be given because normal profit margins vary by industry area.
Hence, Net income divided by net sales is the Profit margin ratio.
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