Zacks.com Featured Highlights Include: Diodes, Enova, Luxfer, Information Services And Harsco
Zacks Investment Research | Dec 04, 2018 09:42PM ET
For Immediate Release
Chicago, IL – December 5, 2018 - Stocks in this week’s article are Diodes Inc. (NASDAQ:DIOD) , Enova International Inc. (NYSE:ENVA) , Luxfer Holdings PLC (NYSE:LXFR) , Information Services Group, Inc. (NASDAQ:III) and Harsco Corp. (NYSE:HSC) .
Bet on These Top Stocks with Striking Net Profit Margins
Net profit margin is the most important entry in an income statement as it demonstrates the affluence of a company. It determines the efficiency of a company in deploying its resources, making it the most suitable metric for the measurement of profitability.
Net Profit Margin= Net profit/Sales * 100.
In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength in a company operations and cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees that eventually add to the value of the business.
Moreover, a higher net profit margin compared to its peers gives the company a competitive edge.
Pros and Cons
Net profit margin helps investors gain clarity on a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.
However, net profit margin as an investment criterion has its own share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
Moreover, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Further, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective while analyzing a company’s performance.
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