Net Profit Margin

Net profit margin measures the profitability of a business in terms of the percentage of revenue that can be retained after deducting operating costs, operating expenses, interest expenses, income tax, and taking into consideration of any non-operating gain/loss (e.g. investment activities). Operating expenses represent recurring costs regardless of the company’s activity or performance in providing product or service. In Katelynn's Report, net profit margin is calculated as Trailing 12 months Net Income/Total Revenue * 100%. Higher net profit margin represents better performance (higher quantile ranking).

Net profit margin varies widely between sectors and industries. So it generally does not make sense to compare net profit margins of companies from different sectors, or even different industries. To illustrate this point, the figures below show the distributions of net profit margin in technology, energy, consumer durables, consumer services, finance, and basic industries sectors, respectively. The solid blue lines and dashed pink lines are for 2017-01-20 and 2016-01-22, respectively.

Technology	Energy
Consumer durables	Consumer services
Finance	Basic industries

Consumer durables and basic industries have the relatively lower net profit margin, while technology and finance sectors have relatively higher net profit margin. The observations are generally consistent with our common sense. It is understandable that consumer durables and basic industries require more raw materials and labors to operate than other sectors listed here.