IAS 1 Profit Margins

Question 1

What does gross profit margin look at?

Answer 1

Performance of business at direct trading level

Question 2

Variation in gross profit margin caused by?

Answer 2

Changes in selling price/volume or changes in cost of sales

Question 3

An example of a change in cost of sales?

Answer 3

Cost of sales may include inventory write downs that may have occurred during period because of damage or obsolescence

Question 4

How is the operating profit margin generally calculated?

Answer 4

PBIT / Revenue

Question 5

What does analusing the operating profit margin allow me to do?

Answer 5

Determine how well the business has managed to control its indirect costs during the period

Question 6

Linkage?

Answer 6

There should be a linkage between gross profit and operating profit

Question 7

If operating profit is ok after gross profit decrease?

Answer 7

Good indirect costs control OR a one-off profit disposal distorting operating profit

Question 8

Similar net profit margin but different gross margins?

Answer 8

Different way of classifying expenses

Question 9

Examples of different ways of classifying expenses?

Answer 9

One company may put depreciation in COS, and another might put in administrative expenses

Question 10

If increase in sales is caused by offering customers a bulk buy discount?

Answer 10

Decreases gross profit

Question 11

What factors cause movement in gross profit amrgin?

Answer 11

Change in sales price, sales mix, due to discounts in purchase price, obsolescence of inventory