Principles of Managerial Finance

64 PART 1 Introduction to Managerial Finance

net profit margin
Measures the percentage of each
sales dollar remaining after all
costs and expenses, including
interest, taxes, and preferred
stock dividends, have been
deducted.

Hint EPS represents the
dollar amount earned on behalf
ofeach share—not the amount
of earnings actually distributed
to shareholders.

Bartlett Company’s operating profit margin for 2003 is

13.6%

This value is labeled (2) on the common-size income statement in Table 2.7.

Net Profit Margin

The net profit marginmeasures the percentage of each sales dollar remaining

after all costs and expenses, includinginterest, taxes, and preferred stock divi-

dends, have been deducted. The higher the firm’s net profit margin, the better.

The net profit margin is calculated as follows:

Net profit margin

Bartlett Company’s net profit margin for 2003 is

7.2%

This value is labeled (3) on the common-size income statement in Table 2.7.

The net profit margin is a commonly cited measure of the firm’s success with

respect to earnings on sales. “Good” net profit margins differ considerably across

industries. A net profit margin of 1 percent or less would not be unusual for a

grocery store, whereas a net profit margin of 10 percent would be low for a retail

jewelry store.

Earnings per Share (EPS)

The firm’s earnings per share (EPS) is generally of interest to present or prospec-

tive stockholders and management. As we noted earlier, EPS represents the num-

ber of dollars earned during the period on behalf of each outstanding share of

common stock. Earnings per share is calculated as follows:

Earnings per share

Bartlett Company’s earnings per share in 2003 is

$2.90

This figure represents the dollar amount earned on behalf of each share. The dol-

lar amount of cash actually distributedto each shareholder is the dividend per

share (DPS),which, as noted in Bartlett Company’s income statement (Table

2.1), rose to $1.29 in 2003 from $0.75 in 2002. EPS is closely watched by the

investing public and is considered an important indicator of corporate success.

$221,000



76,262

Earnings available for common stockholders



Number of shares of common stock outstanding

$221,000



$3,074,000

Earnings available for common stockholders



Sales

$418,000



$3,074,000