# Net Operating Profit Margin Formula

### Definition:

The net operating profit margin formula is a profitability ratio that measures a company’s operating income as a percentage of its net sales revenue.

### Formula:

The net operating profit margin = (Operating income / Net sales revenue) x 100%

Operating income = Gross income – Operating expenses

Net sales revenue = Gross sales revenue – Sales returns and allowances – Discounts

### Example:

A company has \$1,000,000 in net sales revenue and \$400,000 in operating income. To calculate its net operating profit margin, we would use the following formula:

Net Operating Profit Margin = (Operating income / Net sales revenue) x 100%

Net Operating Profit Margin = (\$400,000 / \$1,000,000) x 100% = 40%

This means that for every dollar of sales revenue, the company is earning \$0.40 in operating income after deducting its operating expenses. A Net Operating Profit Margin of 40% is considered quite good, as it indicates that the company is able to generate a high level of profit from its operations.

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