What does the net margin ratio indicate relative to revenue?

The net margin ratio is a crucial metric that reflects the profitability of a company relative to its total revenue. It is calculated by dividing net income by total revenue, expressed as a percentage. This ratio indicates how much profit a company makes for every dollar of revenue it generates after all expenses, including taxes and interest, have been deducted.

Choosing the option related to the increase in shareholders' equity from earnings highlights that a higher net margin indicates better efficiency in transforming revenue into actual profit. When a company has a high net margin, it suggests that the organization is effective in managing its costs and maximizing its profit, which can contribute to an increase in retained earnings and consequently enhance shareholders' equity.

In this context, the other options relate to different aspects of financial health or performance, such as liquidity, total equity measurement, or operating profit levels, rather than explicitly linking revenue to net income as the net margin does. Therefore, the net margin ratio is specifically associated with the profitability aspect reflected in the change in shareholders' equity due to earnings.