A firm's sales are KSh 1,500,000, cost of sales KSh 900,000 and expenses KSh 300,000. What is its net profit margin?
Answer and explanation
Correct answer: D. 20%
- Step 1: Gross profit = 1,500,000 - 900,000 = 600,000. Step 2. Net profit = 600,000 - 300,000 = 300,000. Step 3. Net profit margin = 300,000 / 1,500,000 x 100 = 20%. Answer: 20%. Why not the others: 40%: That is the gross profit margin, before expenses. 33.33%: 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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