DEFINITION OF NET PROFIT RATIO:

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as
percentage.

COMPONENTS OF NET PROFIT RATIO:

The two basic components of the net profit ratio are the net profit and sales. The net
profits are obtained after deducting income-tax and, generally, non-operating
expenses and incomes are excluded from the net profits for calculating this ratio.
Thus, incomes such as interest on investments outside the business, profit on sales of
fixed assets and losses on sales of fixed assets, etc are excluded.

FORMULA:
Net Profit Ratio = (Net profit / Net sales) × 100