A firm's sales are KSh 640,000, cost of sales KSh 400,000 and expenses KSh 120,000. What is its net profit margin?
Answer and explanation
Correct answer: C. 18.75%
- Step 1: Gross profit = 640,000 - 400,000 = 240,000. Step 2. Net profit = 240,000 - 120,000 = 120,000. Step 3. Net profit margin = 120,000 / 640,000 x 100 = 18.75%. Answer: 18.75%. Why not the others: 37.50%: That is the gross profit margin, before expenses. 30%: That divides net profit by cost of sales instead of sales. 62.50%: That is cost of sales as a percentage of sales.
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