Profitability ratios (2)

Question 1

The net profit margin is also a what?

Answer 1

The net profit margin is also a profitability ratio

Question 2

The net profit margin is also a profitability ratio.
What does it calculate?

Answer 2

It calculates net profit as a percentage of sales revenue

Question 3

The net profit margin is also a profitability ratio.
It calculates net profit as a percentage of sales revenue and shows what?

Answer 3

It:
1) Calculates net profit as a percentage of sales revenue
2) Shows what the net profit is for every £ of sales

Question 4

To calculate net profit margin, you will need to extract figures from where?

Answer 4

To calculate net profit margin, you will need to extract figures from the enterprise’s statement of comprehensive income

Question 5

What is the formula for net profit margin?

Answer 5

The formula for net profit margin (NPM) is:
Net profit margin = (Net profit ÷ Sales revenue) x 100

Question 6

The formula for net profit margin (NPM) is:
Net profit margin = (Net profit ÷ Sales revenue) x 100

See page 35 of the revision guide for an example.

How will the answer be shown?

Answer 6

The answer will be shown as a percentage

Question 7

Interpreting the net profit margin:
For example, an enterprise has a net profit margin of 20%.
For every £ it makes in sales, it generates what?

Answer 7

For every £ it makes in sales, it generates £0.20 in gross profit

Question 8

Interpreting the net profit margin:
For example, an enterprise has a net profit margin of 20%.
For every £ it makes in sales, it generates £0.20 in gross profit.
If the net profit margin falls, what may the enterprise do?

Answer 8

If the net profit margin falls, the enterprise may take steps to:
1) Reduce its expenses
Or
2) Increase its sales revenue