After-tax profit margin – definition and meaning

After-tax profit margin is a ratio that reveals the total revenue remaining after all expenses, interest, dividend payments, and tax payments are deducted from sales. After-tax profit margin differs from purely profit margin.

This essentially shows the percentage of revenue once you have deducted the cost of all goods, and any other additional expenses that have been made.

It represents a company’s net income after income tax expense as a percentage of net sales.

After tax profit margin

To calculate after-tax profit margin the following calculation is used: Net Income after Tax divided by Net Sales.

Investors are usually interested in the after-tax profit margin ratio because it allows them to compare a company’s performance to earlier accounting periods, and determine whether (or not) it has managed to reach its target ratio, and see how it is faring compared to its main rivals.

For example, company might report significantly increased revenue compared to the previous accounting period. However, if costs have risen at a higher rate, its after-tax profit margin will be lower.

A low profit margin is one of many key indicators that a company should be controlling its costs more effectively.

Video – Profit Margin