Net Profit Margin is determined by dividing:

Net Profit Margin is a critical financial metric that indicates how effectively a company converts its revenue into profit. It is calculated by dividing net profit by sales revenue. This formula provides insight into how much profit remains from each unit of sales after all expenses, including operating costs, interest, taxes, and other expenses, have been deducted.

Calculating net profit margin in this way allows businesses to assess their overall profitability and operational efficiency, driving strategic decisions to enhance performance. A higher net profit margin signifies a more profitable business, while a lower margin may indicate the need for cost management or pricing strategy adjustments.

The other options do not accurately represent how to calculate net profit margin. For instance, dividing gross profit by operating expenses computes operating efficiency but does not directly relate to overall profitability. Similarly, total revenue by total expenses does not focus specifically on the profit derived from sales, and operating profit by net sales gives insights into operating efficiency rather than the company’s capacity to turn revenues into net profits.