CFA Level I · CFA Level I Exam · Analyzing Income Statements
Company X reports revenue of €800 million, cost of sales of €520 million, operating expenses of €170 million, and net income of €60 million. Its operating profit margin is closest to:
Operating profit is revenue less cost of sales and operating expenses: 800 - 520 - 170 = €80 million. Dividing by revenue of €800 million gives an operating margin of 10.0%. The 7.5% figure would be the net profit margin instead.
- A7.5%
- B10.0%Correct
- C12.5%
Explanation
Operating profit = 800 - 520 - 170 = 80. Margin = 80/800 = 10.0%. The 7.5% option is the net margin (60/800), which uses net income rather than operating profit. The 12.5% option is 100/800 (gross profit minus nothing relevant), a mistaken subtraction.
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