Question

What is the average NPM for non-financial firms in the U.S.? What statistical property does it tend to follow and why? What are the average values for the other measures in the DuPont Identity?

Answer 1

Net Profit Margin for any firm can be calculated by deducting all expenses, including interest and taxes from the revenue for that financial period.

Average Net Profit Margin = Net Profit / Net Sales * 100

A good margin will vary considerably by industry, but as a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high (or “good”), and a 5% margin is low.

the average NPM for non-financial firms in the U.S. is 3% to 30%.

The average NPM helps to measure the amount of profit that a business can extract from its total sales.

The DuPont identity is an expression that shows a company's return on equity (ROE) can be represented as a product of three other ratios: the profit margin, the total asset turnover, and the equity multiplier.