Net Profit Margin

To date, I've taken the following steps:
1.)Chose an industry
2.)Identified the 5 largest companies in that industry
3.)Identified the ticker symbol for each of those 5 companies

The next step, regardless of industry, regardless of business size, and regardless of how a business makes money, is to find out if they're making money. One indicator if a company is making money is their net profit margin.

Net profit margin is the percentage of a business' revenues that are actually profits. For example, when I buy a new shirt for $20, that $20 is broadly broken down into the following:

Fabric and labour $10
Shipping $1
Marketing $2
Business Price of shirt(Fabric and labour plus shipping plus marketing) = $13

Net Profit Margin = (Business Price of Shirt – Cost)/Cost
= ($20-$13)/$13
= 54%

For every $13 that the business spends on shirts, they make $7.

Three things to know about net profit margins:
1.)A positive net profit margin means the business is making money.
2.)A negative profit margin means the business is losing money.
3.)The higher the profit margin, the more money the business is making.

Next blog will give step by step instructions for how to find the net profit margin of a company.