The net interest rate shows the percentage of the company's profit to sales revenue after deducting all costs, expenses and corporate income tax.
Net interest rate = net profit / sales revenue x 100%
Net interest rate is an important indicator of a company's profitability, but it may be affected by one-off items such as asset sales.
Detailed explanation of concept
The net interest rate shows the percentage of a company's profit as a percentage of sales revenue (also known as revenue) after deducting all costs, expenses and corporate income tax.
Net interest rate is an important indicator of a company's profitability. Net interest rate can be used to evaluate whether a company has generated sufficient profits from its sales, and whether it has reasonable sales costs and indirect costs.
Generally speaking, the higher the net interest rate, the better. Ideally, investors want to see a steady increase in the company's net interest rate.
The net interest rate has its limitations. First of all, it may be affected by one-time projects. For example, a company's sale of assets would raise its net interest rate at the time, but only temporarily.
Second, the net interest rate does not reflect the growth of sales or revenue. For example, a company's revenue may be growing, but if its costs and expenses (such as operating expenses) grow faster than revenue, its net interest rate will shrink.
The case of net interest rate
The following is the profit statement of Apple Inc's annual report for the fiscal year ended September 25, 2021:
The annual report shows that:
Apple Inc's net profit in fiscal year 2021 was $94.68 billion.
Apple Inc's revenue in fiscal year 2021 was $365.817 billion.
It can be concluded that