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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. |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
calculate and interpret activity, liquidity, solvency, and profitability ratios
describe relationships among ratios and evaluate a company using ratio analysis
CFA® 2025 Level I Curriculum, Volume 3, Module 11.