IB Business Management HL 3.5.1 Profitability Ratios Questions

Practise calculating and interpreting gross profit margin, net profit margin and ROCE using IB Business Management HL questions.

Exam points

Calculate and interpret profitability ratios, including gross profit margin, net profit margin and ROCE.

[Maximum number: 1]

Call it Magic (CIM)

Call it Magic (CIM) is an online jewellery store that sells silver earrings. It has completed its first year of trading, during which it sold 1000 pairs of earrings. CIM's selling prices are low compared to those of other jewellery stores. The average unit cost per pair of earrings is $5, and overhead costs are already at a minimum level.

Table 1: Selected financial information for CIM for the year ended 31 December 2022

Using relevant information provided above and in Table 1:

calculate CIM's net profit margin (no working required).

$\text{Net profit margin}=\left(\frac{\text{net profit before interest and tax}}{\text{sales revenue}}\right)\times 100$ $\mathrm{NPM}=\left(\frac{\$6500}{\$12000}\right)\times 100=54.1667\%$

Accept 54.2\%
Award [1] for the correct answer. Apply own figure rule (OFR). No working required. Do not penalize lack of \% sign, however, do penalize for excessive rounding i.e. 54, one decimal place is acceptable.

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IB Business Management HL 3.5.1 Profitability Ratios Questions question 1