IB Business Management - 3.5 Profitability and Liquidity Ratios

What does the Gross Profit Margin (GPM) measure?

• The percentage of revenue remaining after all expenses

• The percentage of sales revenue that remains after deducting Cost of Sales

• The ability of a business to meet short-term liabilities

• The efficiency of using capital to generate profit

Which formula is used to calculate Gross Profit Margin (GPM)?

• (Net profit ÷ Revenue) × 100

• (Revenue – Total costs) ÷ Revenue × 100

• (Gross profit ÷ Revenue) × 100

• (Net profit ÷ Capital employed) × 100

Which of the following strategies can improve Gross Profit Margin?

• Reducing Cost of Sales (COS)

• Increasing fixed costs

• Lowering selling prices

• Increasing capital employed

What does the Profit Margin (Net Profit Margin) indicate?

• The percentage of revenue that covers fixed costs

• The percentage of sales revenue that remains as profit before interest and tax

• The liquidity position of a business

• The amount of cash available for reinvestment

How is Profit Margin calculated?

• (Gross profit ÷ Revenue) × 100

• (Profit before interest and tax ÷ Revenue) × 100

• (Revenue ÷ Gross profit) × 100

• (Operating profit ÷ Total assets) × 100

Which of the following strategies can improve (Net) Profit Margin?

• Reducing sales volume

• Increasing Cost of Sales

• Reducing operating expenses

• Increasing variable costs

What does Return on Capital Employed (ROCE) measure?

• The profit available after deducting all expenses

• The proportion of capital used for liquidity

• The efficiency of using capital to generate profit

• The ability to cover short-term debts

Which formula is used to calculate ROCE?

• (Profit before interest and tax ÷ Revenue) × 100

• (Gross profit ÷ Revenue) × 100

• (Profit before interest and tax ÷ Capital employed) × 100

• (Revenue ÷ Capital employed) × 100

Which of the following strategies can improve ROCE?

• A) Increasing Profit before interest and tax

• B) Increasing total liabilities

• C) Reducing total revenue

• D) Reducing the selling price

Which factor is most likely to reduce Gross Profit Margin?

• Increasing product prices

• Rising cost of raw materials

• Decreasing operating expenses

• Reducing fixed costs