Net Profit Margin

Question 1

net profit margin, what is measured?

Answer 1

measures expense control calculating percentage of sales retained as net profit

Question 2

net profit margin increases when?

Answer 2

revenues increase at greater rate than expenses, with good expense control. Impacted by GPM as this flows through the income statement.

Question 3

net profit margin decreases when?

Answer 3

expense increase at a rate greater than revenues, with poor expense control, impacted by GPM as this flows through the income statement.

Question 4

benchmarks?

Answer 4

• previous reporting period
• budgeted performance
• industry average

Question 5

improvement strategies?

Answer 5

1. control specific expenses such as non essential advertising.
2. identify an inventory mix focusing on fast selling inventory lines to increase sales
3. increase revenue by changing selling price or increasing advertising