With sales of 8 million, gross profit of 5 million, and net income of 2 million, what is the net profit margin?

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Multiple Choice

With sales of 8 million, gross profit of 5 million, and net income of 2 million, what is the net profit margin?

Net profit margin shows how much of each dollar of sales remains as net income after all expenses. It’s calculated as net income divided by sales. Here, net income is 2 million and sales are 8 million, so 2/8 = 0.25, or 25%. The gross profit figure would yield a gross margin of 5/8 = 62.5%, which is a different measure that doesn’t account for all expenses.

Net profit margin shows how much of each dollar of sales remains as net income after all expenses. It’s calculated as net income divided by sales. Here, net income is 2 million and sales are 8 million, so 2/8 = 0.25, or 25%. The gross profit figure would yield a gross margin of 5/8 = 62.5%, which is a different measure that doesn’t account for all expenses.

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