Data Analysis Case Study 2.1

University of the Potomac

Data Analysis

Provide a brief definition of net profit margin and explain why it is an important statistic.

Net Profit Margin is a financial ratio used to calculate the percentage profit of a company produces from its total revenue. It measures the amount of net profit a company obtains per dollar of revenue gained. The net profit margin is equal to net profit (also known as net income) divided by total revenue, expressed as a percentage.

Net Profit margin = Net Profit ⁄ Total revenue

Net profit margin helps investors assess if a company’s management is generating enough profit from its sales and whether operating costs and overhead costs are being contained. Net profit margin is one of the most important indicators of a company’s financial health.

Construct appropriate tables (frequency distribution, relative frequency distribution, etc.) and graphs that summarize the clothing industry’s net profit margin. Use −5, 0, 5, and so on, for the upper limits of the classes for thedistribution

Discuss where the data tend to cluster and how the data are spread from the lowest value to the highest value.

From the frequency distribution and histogram – we can see that the frequencies are higher for classes 0-5 and 5-10. Since most of the values in the data get clustered in these two classes, a large number of firms has net profit margin between 0 and 10.

The data is spread from lowest to highest value in a symmetric manner, but it is not perfectly symmetric distribution.

Comment on the net profit margin of the clothing industry, as compared to the beverage industry’s net profit margin of approximately 10.9% (Source: biz.yahoo, July 2010).

It is given that the net profit margin of beverage industry is equal to 10.9%. From the given data, the average net profit margin of clothing industry is approximately equal to 4.07, hence net profit margin of the clothing industry is approximately equal to 12.74%.

NPM = Net Profit/Total revenue

NPM of Clothing Industry = 4.075/32*100 = 12.74%

NPM of Clothing Industry > NPM of Beverage Industry

Higher the net profit margin, the more effective is the firm in converting revenue into actual profit.

References

Data FILE Net_Profit_Margins

https://corporatefinanceinstitute.com/resources/knowledge/finance/net-profit-margin-formula/

https://smallbusiness.chron.com/net-profit-margin-ratio-measure-24448.html

https://www.investopedia.com/terms/n/net_margin.asp