A firm's sales are KSh 1,000,000, cost of sales KSh 600,000 and expenses KSh 250,000. What is its net profit margin?
Answer and explanation
Correct answer: A. 15%
- Step 1: Gross profit = 1,000,000 - 600,000 = 400,000. Step 2. Net profit = 400,000 - 250,000 = 150,000. Step 3. Net profit margin = 150,000 / 1,000,000 x 100 = 15%. Answer: 15%. Why not the others: 40%: That is the gross profit margin, before expenses. 25%: That divides net profit by cost of sales instead of sales. 60%: That is cost of sales as a percentage of sales.
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