Skip to content

IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Which of the following correctly defines the net profit margin of a company?

Net profit margin is profit after tax divided by revenue. It shows what share of each rupee of sales is left as profit after all expenses, interest and tax. Other ratios listed measure return on capital, gross margin, return on equity or asset turnover.

  1. AProfit after tax divided by revenueCorrect
  2. BProfit before interest and tax divided by capital employed
  3. CGross profit divided by revenue
  4. DProfit after tax divided by shareholders' equity
  5. Revenue divided by capital employed

Explanation

Net profit margin measures how much of each rupee of revenue remains as profit after all costs, interest and tax. Option B is return on capital employed, C is gross margin, D is return on equity and E is asset turnover.

Did you get it right without looking?

One question tells you little. A timed set on Interpreting company accounting information shows your real accuracy, how long you take and where you lose marks.

Practise Interpreting company accounting informationFree diagnostic mock

More Interpreting company accounting information questions