The after tax profit margin ratio tells you the profit per sales dollar after all expenses are deducted from sales. In other words, the after tax profit margin ratio shows you the percentage of net sales that remains after deducting the cost of goods sold and all other expenses including income tax expense. The calculation is: Net Income after Tax · Net Sales.
The before tax profit margin ratio expresses the corporation's income before income tax expense as a percentage of net sales.
The profit margin ratio is most useful when it is compared to 1) the same company's profit margin ratios from earlier accounting periods, 2) the same company's targeted or planned profit margin ratio for the current accounting period, and 3) the profit margin ratios of other companies in the same industry during the same accounting period.
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