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NP Margin

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › NP Margin

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • October 24, 2015 at 11:46 pm #278782
    Sir Insanity
    Participant
    • Topics: 28
    • Replies: 44
    • ☆☆

    Respected Tutor, is there a general rule of thumb for the Net Profit used in calculating the profit margin?

    In some places, for instance in the following:
    (ROCE = NP Margin * Asset Turnover)

    NP is taken as NPBIT (Net Profit Before Interest and Tax).

    But in other cases, for example questions asking simple calculations of this margin, NP is taken as Net Profit after Interest but before Tax, and sometimes simply as Net profit after both tax and profit.

    What’s the formula to be used? For example in a question with a detailed SOPL, which figure would we pick for NP? NPBIT, NPBT or PAT (After tax)

    October 25, 2015 at 7:38 am #278802
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    Unfortunately there isn’t really a rule (unless the question says ‘net operating profit’ – this always means profit before interest and tax).

    When looking at financial ratios it is virtually always the net operating profit that is relevant.

    October 25, 2015 at 12:56 pm #278847
    Sir Insanity
    Participant
    • Topics: 28
    • Replies: 44
    • ☆☆

    Hmm alright. Hopefully this won’t be an issue.

    Also: Is it right to say that redeemable preference shares form part of Long-term Loans (or Long-Term Loan Capital) but are excluded from shareholder’s equity?

    October 25, 2015 at 6:20 pm #278901
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    That is correct 🙂

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