Term: ANNUAL NET PROFIT MARGIN

The percentage that the company earned from gross sales (also called “turnover”) for the most recently reported fiscal year. In other words, the after-tax profit expressed as a percentage of turnover. Also known as the “net margin” or just the “margin”. Obviously, if a company is making a declining margin this is something to be concerned about. In general, the board of directors will do everything in its power to raise the margin. They do this by analysing it by individual product to determine which products contribute the most to overheads and profits. They are always looking for ways to reduce the working capital tied up in the production and sales of specific product lines. It is useful to compare a company’s margin with previous years and also with other similar companies in the same industry. The problem is that the earnings figure often contains once-off incomes and expenses which can distort the picture. It is therefore better to use the headline earnings figure.

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