How to Calculate Net Income Ratio refers to a calculation that determines the profitability of a business from its core operations. By dividing net income by total revenue, you can obtain the net income ratio. For example, if a company has net income of $1 million and total revenue of $10 million, its net income ratio would be 10%.
This metric is crucial for evaluating a company’s financial health. A higher net income ratio indicates that a company is more profitable and efficient in generating revenue. Historically, the net income ratio has played a pivotal role in shaping accounting practices.