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Hi John,
In this scenario, operating profit has been given for both divisions. In the answer, BPP have calculated the margin and labelled it as ‘net profit margin’.
I thought operating profit is different from net profit – operating profit includes tax and interest whereas net profit does not.In my answer I have only calculated operating profit margin and wrote it would be useful to have interest and tax figures to be able to calculate net profit – would that be incorrect?
Thanks.
Operating profit is the profit before interest and tax.
In financial accounting, net profit is the profit after interest and tax. However for management accounting net profit means net operating profit i.e. before interest and tax.
Also, divisions don’t pay tax and don’t pay interest – they are both paid by the full company not by individual divisions.
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