What does the net profit margin indicate?

The net profit margin is a key financial metric that indicates the percentage of revenue that remains as profit after all operating expenses, interest, taxes, and other costs have been deducted. It is expressed as a percentage, calculated by dividing net income by total revenue. This measurement is crucial for investors and management because it provides insight into how efficiently a company is able to convert revenue into actual profit. A higher net profit margin signifies better profitability and financial health, suggesting that the company is effectively managing its costs relative to its sales.

Options that refer to total expenses, market capitalization, or overall market risk focus on different aspects of financial analysis and do not provide the specific insight into profitability that the net profit margin offers. Thus, the choice that correctly identifies the net profit margin as the percentage of revenue remaining after expenses is the most accurate representation of its significance in financial analysis.