Final answer:
GPM represents the Gross Profit Margin and NPM represents the Net Profit Margin. An increase in GPM means more revenue after subtracting the cost of goods sold, but if NPM decreases, it indicates higher expenses, resulting in a lower overall profit margin.
Step-by-step explanation:
GPM stands for Gross Profit Margin, and NPM stands for Net Profit Margin. The Gross Profit Margin is a measure of profitability that calculates the percentage of revenue remaining after subtracting the cost of goods sold. The Net Profit Margin, on the other hand, measures the percentage of revenue that remains after subtracting all expenses, including taxes and interest.
So, if the GPM increased but the NPM decreased, it means that the cost of goods sold increased, or the expenses (including taxes and interest) increased. This could be due to various reasons such as higher production costs, increased overhead expenses, or changes in taxes and interest rates. An increase in GPM alone does not necessarily indicate an increase in overall profitability, as it does not take into account all expenses.
For example, let's say a company's GPM increased from 40% to 45%, which indicates that they are able to generate more revenue from the sale of their products. However, if their NPM decreased from 15% to 10%, it means they are spending more on expenses, resulting in a lower overall profit margin.