Home › US CMA Part 2 › Financial Management › Using Financial Information and Accounting › A bakery earned a net profit of $32,175 on net s…
A bakery earned a net profit of $32,175 on net sales of $270,500. What is its net profit margin?
A8.4%
B40.9%
C11.9%
D18.9%
Answer & Solution
Correct answer: C. 11.9%
1. The net profit margin divides net profit by net sales.
2. Net profit is $32,175.
3. Net sales are $270,500.
4. Divide: $32,175 divided by $270,500 equals 0.119.
5. Expressed as a percentage that is 11.9 percent.
6. In plain terms the bakery is earning 11.9 cents on each dollar of sales.
7. Answering 40.9 percent divides by owners' equity instead of sales, which is the return on equity rather than the margin.
8. Good margins vary widely by trade: a grocery store may sit below 1 percent while a jewelry store exceeds 10 percent.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
Related questions
What does a debt-to-equity ratio above 100 percent tell you about who is funding the firm?A bakery reports total liabilities of $70,150 and owners' equity of $78,750. What is its dHow is the debt-to-equity ratio calculated, and which direction is generally better?Why can no single inventory turnover value be called good for every firm?Cost of goods sold was $112,500, beginning inventory was $18,000 and ending inventory was How is the inventory turnover ratio calculated?What do activity ratios reflect?A bakery earned a net profit of $32,175 and has 10,000 shares of common stock outstanding.