Net Profit Ratio is the ratio of net profit after tax to net sales. It explains per rupee profit generating capacity of sales. This ratio is a measure of the overall profitability net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. This ratio is very useful to the proprietors and prospective investors because it reveals the overall profitability of the concern. It is calculated as follows:

For example if net profit after tax is Rs.80,000 and net sales are Rs.5,00,000, the net profit ratio will be calculated as follow:

**It is better the higher ratio because it gives idea of improved efficiency of the concern.**

**NEXT – Profitability Indicator Ratios: Return on Capital Employed**

**Table of Contents
1) Profitability Indicator Ratios: Introduction
2) Profitability Indicator Ratios: Gross Profit Ratio
3) Profitability Indicator Ratios: Operating Profit Ratio
4) Profitability Indicator Ratios: Net Profit Ratio
5) Profitability Indicator Ratios: Return on Capital Employed
6) Profitability Indicator Ratios: Return on Equity
7) Profitability Indicator Ratios: Return on Assets**