Measures of Performance Flashcards
What does gross profit margin measure
Measure of profitability which only considers direct cost of sales
What does gross profit margin indicate?
the price premium a company commands for its products/service
Other things gross profit margin tells us:
-How much gross profit is made per £ sales?
-The efficiency of the firm’s procurement & production processes
Why might gpm decrease?
cost of sales increased, or sales decline
What does gpm tell us?
the % of each £1 of revenue that can be used to cover everything other than cost of sales.
Is a higher gpm better or worse?
Better
Operating Profit Margin
Measure of profitability which considers cost of sales and operating expense
What does operating profit margin indicate?
How efficiently a company is able to generate profit through its core operations
Operating profit margins are not distorted by….
interest and tax figures
Why might opm increase?
operating profit increases
What does opm tell us?
the % of each £1 of revenue that can be used to cover interest, taxes, and profit.
Net Profit Margin
Measure of profitability which considers all expenses
What does net profit margin indicate?
how efficiently a company is able to generate profit, considering financing and tax expenses
What does net profit margin tell us?
the % of each £1 of revenue that goes straight to the bottom line (i.e., profit).
Why might npm decrease?
increased interest or tax rate
