What is subtracted from the gross profit margin to determine net profit margin?

To determine the net profit margin, taxes are subtracted from the gross profit margin. The gross profit margin reflects the revenue remaining after deducting the cost of goods sold, which includes direct costs like materials and labor. However, to arrive at the net profit margin, it is essential to account for other expenses, primarily taxes, which are obligations that reduce the overall profitability of the business.

Net profit margin gives a clearer picture of a company's financial health by including all expenses beyond the cost of goods sold. This includes operational expenses and taxes, which ultimately affect the bottom line. Understanding this calculation helps in evaluating how efficiently a business is operating and its overall profitability after all necessary deductions.