Question

Which profit margin measures the overall operating efficiency of the firm?

(a) Gross profit margin.
(b) Operating profit margin. (c) Net profit margin.
(d) return on equity.

Answer 1

The operating profit margin measures the overall operating efficiency of a firm by calculating the percentage of operating profit to total revenue.Option (b) Operating profit margin is correct answer.

Step-by-step explanation:

The profit margin that measures the overall operating efficiency of the firm is the Operating profit margin. Operating profit margin is calculated by dividing the operating profit (also known as earnings before interest and taxes) by the total revenue of the firm and is expressed as a percentage.

Operating profit margin indicates how well a company generates profit from its core operations, excluding factors such as interest expenses and taxes. It is a key measure of a firm's profitability and efficiency in managing its operating costs.

For example, if a company has an operating profit of $500,000 and a total revenue of $2,000,000, the operating profit margin would be calculated as follows:

1. Operating profit margin = (Operating profit / Total revenue) x 100
2. Operating profit margin = ($500,000 / $2,000,000) x 100
3. Operating profit margin = 0.25 x 100
4. Operating profit margin = 25%