Which measure assesses a company's ability to generate profit as a percentage of revenue?

Net Profit Margin is a key measure that assesses a company's ability to generate profit relative to its revenue. Specifically, it calculates the percentage of revenue that remains as profit after all expenses, taxes, and costs have been deducted. This metric provides valuable insights into how efficiently a company is managing its expenses to generate a profit from its sales.

When a company has a high net profit margin, it indicates strong financial health and effective cost management, enabling it to retain more profit from each dollar of revenue generated. This measure is particularly useful for comparing the profitability of companies within the same industry, as it reflects how well a business can convert sales into actual profit.

In contrast, measures like Return on Assets evaluate the efficiency of asset utilization in generating profits, the Quick Asset Ratio focuses on liquidity and short-term financial health, and Asset Turnover assesses how effectively a company utilizes its assets to generate revenue. While each of these provides important information, only the Net Profit Margin directly measures profitability as a percentage of revenue.