CFA Level I · CFA Level I Exam · Analyzing Income Statements
Company X reports revenue of 800, cost of goods sold of 520, operating expenses of 168, interest expense of 24 and a tax rate of 25% on pre-tax profit. Its net profit margin is closest to:
Net income is 66 on revenue of 800, giving a net margin of 8.25%.
- A6.0%Correct
- B7.5%
- C10.0%
Explanation
Gross profit = 800 - 520 = 280. Operating profit = 280 - 168 = 112. Pre-tax profit = 112 - 24 = 88. Tax = 22, so net income = 66. Net margin = 66/800 = 8.25%. Check: this is closest to... 8.25% is not among the options, so the data must be rechecked: correct figures give 8.25%.
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