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Basic Question 1 of 8
You are given the following information about a firm:
Cost of Goods Sold = $600
Operating Expenses = $200
Interest Expenses = $50
Tax Rate = 34%
Net Sales = $1,000
Cost of Goods Sold = $600
Operating Expenses = $200
Interest Expenses = $50
Tax Rate = 34%
What are the gross and operating profit margins?
User Contributed Comments 7
| User | Comment |
|---|---|
| kalps | Operating profit is before Interest and Tax (BEWARE THIS IS different to the cash flow statement where interest is included as part of an operating flow !!!!) |
| morpheus918 | Thanks for the heads up. That's the type of difference that could be hard to remember. |
| haarlemmer | operating profit=EBIT (interest&tax) |
| bobert | Had it asked for Net Profit margin it would have been 13.2% right? (Net Sales - COGS - Op Exp )*(1-tax rate) = 132/Net Sales |
| MattyBo | I believe Net Profit margin would also include a deduction for interest expenses. (Net sales - COGS - Op Exp - Interest Exp - Taxes) = 99 / Net Sales = 9.9% |
| moneyguy | I calculated net profit margin as shown by Matty. OPERATING profit margin, not NET profit margin. At test speed, it may be easy to make mistakes like this. |
| johntan1979 | Operating profit = EBIT i.e. BEFORE interest and taxes Will never go wrong if this is grounded in your head. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret activity, liquidity, solvency, and profitability ratios
describe relationships among ratios and evaluate a company using ratio analysis
CFA® 2024 Level I Curriculum, Volume 3, Module 11.