CFA Practice Question

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CFA Practice Question

What is the percentage of profit earned on each sales dollar called?

A. Gross profit margin
B. Net profit margin
C. Operating profit margin
Correct Answer: B

Net profit margin is equal to net earnings divided by net sales. Net profit margin shows the percentage of profit earned on each sales dollar.

User Contributed Comments 6

User Comment
kalps Unclear quaestion, requires more information. However for the sake of passing the exam just remember the damn answer. Profit earned on each sales dollar = net profit margin
Gina well -- this is actually the definition of net profit margin, also called return on sales (ROS), and shows the profitability of the company's operating activities.
danrow Why not a?
surob B/c it is gross profit not just profit
bobert If it had said, "what is the % of sales after deducting COGS" it would have been A.

Profitable by definition is the ability to earn enough income to attract and hold investment capital.

If you though it could be A, with the information given, you need to consider that you as a shareholder don't earn all the profit on gross profit margin. There are still remaining expenses that will be deducted (operating expenses & income taxes). What you EARN on each dollar of revenue is the net profit margin.
wundac Net profit margin = net income/revenues. since net income is total revenues - all cost and expenses the answer is B
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