# After Tax Profit Margin - Explained

What is After Tax Profit Margin?

# What is After-Tax Profit Margin?

The after-tax profit margin refers to the revenue and financial performance of a company after the net income has been divided from the net sales. The net income refers to the income left after taxes have been paid. The after-tax profit margin measures how effectively a company controls its cost, this profit margin shows how much revenue a company has left after its net income is divided by its net sales. If the after-tax profit margin of a company is high, it indicates that the company is effective in managing.

## How is After-Tax Profit Margin Used?

The after-tax profit margin also shows the amount of per dollar sales a company earns. Generally, the after-tax profit margin shows the total revenue left in a company after all expenses have been paid, including taxes. The efficiency of a company in managing its costs will determine what the after-tax profit margin will look like. It is, however, important to know that the after-tax profit margin is not a gauge of the overall performance of a company but only reflects how well it handles its costs. When used alongside other metrics, the after-tax profit margin can be used to determine the overall health of a company.

## What Are Net Income and Net Sales?

Net sales are otherwise called net revenue, this is the total amount a company earns from selling goods and offering services to its customers. Net income, on the other hand, is also called net profit, this is the amount that is left over for a company after all expenses, losses, and gains, taxes and other liabilities have been accounted for. In business, the profitability of a company is measured through net income. The net income is the last line item on an income statement, it shows the balance a company has left after taxes have been paid and other expenses including the costs of goods (COGS) have been removed.

## How Do After-Tax Profit Margins Work?

The after-tax profit margin is calculated by dividing net income by net sales. Hence, if the net income of Company A is \$400,000 and the net sales \$600,000, the after-tax profit margin is; \$400,000/\$600,000. The after-tax profit margin of a company is not static, this is due to the fact that the net income and net sales of the company can increase o otherwise. Investors consider the after-tax profit margin of a company, it serves as a signal that a company handles its costs well or not. If the after-tax profit margin is high, the company manages its costs well but when it is low, it is an indicator that the costs of a company are not efficiently managed.

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