Acca financial Accounting (FA) Study Text ac ca (FA)

 

 

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Chapter 20 

KAPLAN PUBLISHING

 

383 

Operating profit margin (net profit) 

The 

operating profit margin

 or net profit margin is calculated as: 

 

PBIT

Sales revenue

 × 100% 

The operating margin is an expansion of the gross margin and includes all of 

the items that come after gross profit but before finance charges and taxation, 

such as selling and distribution costs and administration costs. 

If the gross margin is a measure of how profitably an entity can produce and sell 

its products and services the operating margin also measures how effectively 

the business manages/administers that process. 

Therefore, if the gross margin has remained static but the operating margin has 

changed consider the following possibilities (these represent suggestions; it is 

not a comprehensive list): 

•

 

changes in employment patterns (recruitment, redundancy etc.) 

•

 

changes to depreciation due to large acquisitions or disposals 

•

 

significant write-offs of irrecoverable debt 

•

 

changes in rental agreements 

•

 

significant investments in advertising 

•

 

rapidly changing fuel costs.