Learning objective
Calculate gross profit margin and net profit margin ratios.
Read the explanation, check the common trap, then practise with flashcards and questions.
At a glance
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Flashcards
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Questions
Topic
Quantitative skills in business
Subtopic
Calculation requirements
Study support
Understand this objective
Quick explanation
Calculate gross profit margin and net profit margin ratios
- This point belongs to Quantitative skills in business, especially Calculation requirements.
- You need to be able to calculate gross profit margin and net profit margin ratios.
- The key ideas to know are gross profit margin, profit, and net profit margin.
- Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.
Key concepts
Why it matters
This objective helps connect Calculation requirements to exam-style questions, flashcards, and revision notes for Quantitative skills in business.
Quick student answer
A business has the following figures for the year: revenue £500,000; cost of goods sold £300,000; operating expenses £100,000; interest £5,000; tax £10,000. Calculate the gross profit margin and the net profit margin.
Direct answer
Gross profit margin: 40%; Net profit margin: 17%
How it works
Gross profit = £500,000 - £300,000 = £200,000. Gross profit margin = £200,000 ÷ £500,000 = 0.40 = 40%. Net profit = £200,000 - £100,000 - £5,000 - £10,000 = £85,000. Net profit margin = £85,000 ÷ £500,000 = 0.17 = 17%.
Key terms
- Net profit margin: The ratio of net profit to revenue, expressed as a percentage.
Common trap
Confusing gross profit margin with net profit margin: Gross profit margin only considers the cost of goods sold; net profit margin includes all operating expenses, interest and tax.
Related questions
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Flashcard prompts
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Revision notestopic notes
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Open revision notesRelated learning objectives
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