Gross and net profit margin (1)

Flying Carpets buy and sell quality oriental rugs. All rugs are imported, so fluctuations in exchange rates can affect profit levels. Table 1 shows: Sales revenue £250,000; Cost of sales £100,000; Gross profit £150,000. Using table 1, calculate the firm’s gross profit margin.

• 40%

• 60%

• 28%

• 33%

Answer explanation

Gross profit margin is calculated as (Gross Profit / Sales Revenue) x 100. Here, (150,000 / 250,000) x 100 = 60%. Therefore, the correct answer is 60%.

Over the last year, Flying Carpets has moved to larger premises and experienced a rise in operating expenses. Table 2 shows: Sales revenue £250,000; Cost of sales £100,000; Gross profit £150,000; Other operating expenses & interest £80,000; Net profit £70,000. Using table 2, calculate the firm’s net profit margin.

• 60%

• 28%

• 33%

• 19%

Answer explanation

Net profit margin is calculated as (Net profit / Sales revenue) x 100. Here, (70,000 / 250,000) x 100 = 28%. Therefore, the correct answer is 28%.

Cisterns Are Doing It For Themselves Ltd is owned and operated by two female plumbers. To launch the business they spent a significant amount on promotion. Table 3 shows: Sales revenue £5,930; Cost of sales £1,120; Other operating expenses & interest £3,675. Using the information in table 3, calculate the firm’s gross profit and gross profit margin (give your answer to two decimal places).

• Gross profit £4,810 and gross profit margin 81.11%

• Gross profit £4,810 and gross profit margin 19.14%

• Gross profit £1,135 and gross profit margin 19.14%

• Gross profit £5,930 and gross profit margin 81.11%

Answer explanation

Gross profit is calculated as Sales revenue minus Cost of sales: £5,930 - £1,120 = £4,810. The gross profit margin is (Gross profit / Sales revenue) x 100 = (4,810 / 5,930) x 100 = 81.11%. Thus, the correct choice is gross profit £4,810 and margin 81.11%.

Using the information in table 3, calculate the firm’s net profit and net profit margin (give your answer to two decimal places). Table 3 shows: Sales revenue £5,930; Cost of sales £1,120; Other operating expenses & interest £3,675.

• Net profit £1,135 and net profit margin 19.14%

• Net profit £4,810 and net profit margin 81.11%

• Net profit £1,135 and net profit margin 81.11%

• Net profit £4,810 and net profit margin 19.14%

Answer explanation

Net profit is calculated as Sales revenue minus Cost of sales and Other operating expenses: £5,930 - £1,120 - £3,675 = £1,135. The net profit margin is (Net profit / Sales revenue) x 100 = (1,135 / 5,930) x 100 = 19.14%.

Throw It My Way is a recycling firm that runs a large fleet of disposal lorries. Increased demand has enabled the business to expand, but with high costs of recycling and rising storage and fuel prices, its costs have increased significantly. The firm’s cost of sales is currently 75% of its sales revenue. Table 4 shows (000s): Sales revenue £3,456; Other operating expenses & interest £956. Calculate the firm’s gross profit margin (give your answer to two decimal places).

• 25.00%

• 33.28%

• 05.61%

• 66.72%

Answer explanation

Gross profit is calculated as sales revenue minus cost of sales. Here, cost of sales is 75% of £3,456, which is £2,592. Gross profit is £3,456 - £2,592 = £864. Gross profit margin = (Gross profit / Sales revenue) x 100 = (864 / 3456) x 100 = 25.00%.

Using the same information for Throw It My Way, with cost of sales equal to 75% of sales revenue and table 4 showing (000s): Sales revenue £3,456; Other operating expenses & interest £956. Calculate the firm’s net profit margin (give your answer to two decimal places).

• -2.66%

• 05.61%

• 19.14%

• 33.28%

Answer explanation

Net profit = Sales - Cost of Sales - Other Expenses. Cost of Sales = 75% of £3,456 = £2,592. Net profit = £3,456 - £2,592 - £956 = -£192. Net profit margin = (-£192 / £3,456) * 100 = -2.66%.

GreenTech Ltd has the following figures: Sales revenue £800,000; Cost of sales £600,000; Other operating expenses & interest £120,000. What is the company's net profit margin?

• 8.75%

• 10.25%

• 12.50%

• 10.00%

Answer explanation

Net profit is calculated as Sales Revenue - Cost of Sales - Other Operating Expenses. Here, it is £800,000 - £600,000 - £120,000 = £80,000. The net profit margin is (£80,000 / £800,000) * 100 = 10%. The correct answer is 12.50%.

Table 6 shows: Sales revenue £1,200,000; Cost of sales £300,000; Other operating expenses & interest £700,000. Calculate the firm's net profit and net profit margin.

• Net profit £200,000 and net profit margin 75.00%

• Net profit £200,000 and net profit margin 16.67%

• Net profit £900,000 and net profit margin 75.00%

• Net profit £900,000 and net profit margin 16.67%

Answer explanation

Net profit is calculated as Sales revenue minus Cost of sales and Other operating expenses: £1,200,000 - £300,000 - £700,000 = £200,000. The net profit margin is Net profit divided by Sales revenue: £200,000 / £1,200,000 = 16.67%.

Eco Solutions Ltd has the following figures: Sales revenue £1,000,000; Cost of sales £400,000; Other operating expenses & interest £500,000. What is the company's net profit margin?

• 10.00%

• 20.00%

• 10.50%

• 15.00%

Answer explanation

Net profit is calculated as Sales Revenue - Cost of Sales - Other Operating Expenses. Here, it is £1,000,000 - £400,000 - £500,000 = £100,000. The net profit margin is (£100,000 / £1,000,000) * 100 = 10.00%.

BlueWave Ltd has the following figures: Sales revenue £2,000,000; Cost of sales £1,200,000; Other operating expenses & interest £500,000. What is the company's net profit margin?

• 15.00%

• 14.00%

• 13.50%

• 12.50%