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Net Income Ratio Formula:
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The Net Income Ratio (NIR), also known as net profit margin, measures how much net income is generated as a percentage of revenue. It indicates the profitability and efficiency of a company in converting revenue into actual profit.
The calculator uses the Net Income Ratio formula:
Where:
Explanation: This ratio shows what percentage of each dollar of revenue remains as profit after all expenses are paid.
Details: The Net Income Ratio is crucial for investors, analysts, and business owners to assess a company's profitability, compare performance across industries, and make informed financial decisions. Higher ratios indicate better profitability management.
Tips: Enter net income and revenue in USD. Both values must be positive, with revenue greater than zero. The calculator will compute the percentage ratio automatically.
Q1: What is a good Net Income Ratio?
A: A good NIR varies by industry, but generally 10-20% is considered healthy. Technology companies often have higher margins (15-25%), while retail may have lower margins (2-5%).
Q2: How does NIR differ from gross profit margin?
A: Gross profit margin only considers cost of goods sold, while NIR considers all expenses including operating costs, taxes, and interest, providing a complete profitability picture.
Q3: Can NIR be negative?
A: Yes, if a company has a net loss (negative net income), the NIR will be negative, indicating the company is losing money.
Q4: Why might NIR decrease over time?
A: NIR can decrease due to rising costs, increased competition, pricing pressures, or economic downturns affecting profitability.
Q5: How often should NIR be calculated?
A: NIR should be calculated quarterly and annually to track financial performance trends and make timely business adjustments.