profit and loss accounts Flashcards
1
Q
what is gross profit margin
A
measures the percentage of revenue after cost of sales
2
Q
how is gross profit margin calculated
A
(gross profit/revenue) x 100
3
Q
what is net profit margin
A
Net Profit Margin measures the percentage of revenue remaining after all expenses
3
Q
what does the gross profit margin show
A
how efficiently a business converts sales into profit by controlling production or purchase costs
4
Q
how do you calculate the net profit margin
A
(net profit/ revenue) x 100
5
Q
Why are profitability ratios important in business analysis?
A
assess financial performances of business over time and help compare against competitors
5
Q
what does a high gross profit indicate
A
the business effectively controls production costs
6
Q
what does a low net profit indicate
A
- High operating costs
- excessive debt
- inefficient cost management relative to revenue.
