How is the Net Profit Margin calculated?

The correct method for calculating the Net Profit Margin is by dividing net profit by total sales. This metric indicates how much profit a company makes for every dollar of sales after all expenses, taxes, and costs have been accounted for. The net profit margin provides insight into the company's overall profitability and efficiency in converting sales into actual profit.

Net profit is the revenue remaining after deducting all operational costs, including cost of goods sold, operating expenses, interest, and taxes. By comparing net profit to total sales, you can understand what fraction of revenue is retained as profit, which is essential for assessing financial performance.

When evaluating other options, the focus is on the relationship between net profit and various metrics. For example, measuring net profit against the retail price does not give a complete picture of profitability relative to all sales generated. Similarly, using wholesale cost or operating expenses lacks the necessary context to assess overall profitability accurately. Only total sales provide the comprehensive view needed for a reliable net profit margin calculation.