Which metric expresses profitability relative to revenue?

• A. Net Profit Margin
• B. Working Capital Ratio
• C. Return on Equity
• D. Asset Turnover

Answer: (A)

Net profit margin is the metric that expresses profitability relative to revenue. It shows how much profit remains from each dollar of revenue after all expenses, taxes, and interest have been subtracted. The calculation—net income divided by revenue—directly ties profit to the amount of revenue produced, making it the best measure of profitability per unit of revenue.

In contrast, the working capital ratio gauges liquidity by comparing current assets to current liabilities; it doesn’t reflect profitability. Return on equity looks at profit relative to shareholders’ equity, not revenue, and asset turnover measures how efficiently assets generate revenue, not how much profit revenue earns.