Net Profit Ratio Revision

How do you calculate the Net Profit Ratio?

• Net Profit divided by Net Sales x 100

• Net Sales divided by Net Profit x 100

What is the main function of an Income Statement and Balance Sheet?

• To calculate your assets

• To present information to Stakeholders to to help in decision making of the business

• To calculate your net profit

What does the Net Profit Ratio show us?

• How much money the business has spent

• How much money the business owes

• The percentage of profit in each sale

• The percentage of assets in each account

What does it mean if a business has an 'unfavourable' Net Profit Ratio?

• The NPR for the business is above the industry standard

• The NPR for the business is below the industry standard

What does it mean if a business has an 'favourable' Net Profit Ratio?

• The business NPR is better than the industry average

• The business NPR is performing worse than the industry average

A high NPR could indicate the following things about the business (there is more than one correct answer):

• Revenues are high and the expenses have been kept low

• Selling price of sock may be too low

• Amount of sales is very low compared to the fixed costs (electricity, wages etc.)

• Business was able to cover all costs and still make a good profit

A low NPR could indicate the following things about the business (there is more than one correct answer):

• Expenses are too high compared to sales and other revenues

• The business was able to cover all costs and still make a good profit

• Selling price of sock may be too low

• Amount of sales is very low compared to the fixed costs (electricity, wages etc.)

Which of the following are methods a business could implement to increase their revenue (there is more than one correct answer)?

• Increase sale price of items (still within a competitive rage)

• Look for alternate forms of advertising that may reach a wider or target audience at a reasonable price for example, using social media.

• Offer a sale to get rid of old stock and introduce new ‘on trend’ stock items

• Introduce other sources of revenue, for example offering a service rather than just selling products or renting out unused office space

Which of the following methods could a business implement to reduce their expenses (there is more than one correct answer)?

• Minimise loss due to theft by insulating security camera and ensuring no excess cash is kept on the premises.

• Compare different insurance, electricity and telephone companies to get cheaper plans that are suited to the business’ needs

• Restructure staffing

• Revise target customers/clients and meet there needs with relevant stock/services

If you business NPR is 40% and the Industry average is 58%, does your business have a....

• Favourable Net Profit Ratio

• Unfavourable Net Profit Ratio