CSLB Law & Business ExamBusiness FinancesMedium
A contractor's income statement shows total revenue of $400,000 and net profit of $32,000 for the year. What is the contractor's net profit margin?
- A80%
- B8%
- C32%
- D12.5%
Show answer & explanationAnswer & explanation
Correct answer: B. 8%
Net profit margin = Net Profit ÷ Revenue = $32,000 ÷ $400,000 = 0.08, or 8%. This shows that 8 cents of every revenue dollar is retained as profit after all expenses.
Why the other options are wrong
- A. Far too high; not supported by the math.
- C. Confuses net profit dollar amount with a percentage.
- D. Incorrect calculation; does not match the figures.
Net Profit Margin
The percentage of revenue remaining as profit after all expenses, taxes, and costs are deducted.
- Formula: Net Profit ÷ Total Revenue
- Expressed as a percentage
- Used to compare profitability across periods or companies
Memory trick: Margin tells you how much of every sales dollar you actually keep.