Financial Performance Measurement – Profitability Measures – ACCA Management Accounting (MA)
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My bpp book formula for operating profit margin is – operating profit / revenue x 100 , and you said that net profit margin is – profit before interest and taxation / revenue x 100 so is it basically the same thing, if we are calculating net profit margin why are we not doing – net profit / revenue x 100 why we used operating profit (profit before interest and taxation) to calculate net profit margin, net profit does not exclude any cost compared to operating profit which exclude interest & taxation. Can you clarify about this please. Thank you
Would the gross margin be different for marginal and absorption costing?
Yes – if it was relevant you would be asked for either the gross contribution margin or the gross profit margin.
There are many different formulas to calculate ROCE, are the two in the notes sufficient for the exam?
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Profit before tax is after subtracting interest paid. Profit before interest and tax is before subtracting interest paid.
ohh sorry sir. actually i wanted to know why we had chosen operating profit instead of profit before taxation in Return on Capital Employed. i kind of forgot finance costs are also known as interests. my bad!
It is because we are trying to measure how well the business is actually performing. We take the operating profit before interest (because how much interest we pay depends on where we got the money from the finance the operations) and also before tax (because we do not control the rate of tax that the government charges).
thank you sir!
You are welcome 🙂