Future Business Leaders of America (FBLA) Business Calculations Practice Test

A company has a net profit of $500,000 and total sales of $5 million. What is the net profit margin?

1. A. 5%

2. B. 10%

3. C. 15%

4. D. 20%

The correct answer is: A. 5%

To find the net profit margin, you can use the formula: \[ \text{Net Profit Margin} = \left( \frac{\text{Net Profit}}{\text{Total Sales}} \right) \times 100 \] In this scenario, the company has a net profit of $500,000 and total sales of $5 million, which can also be expressed as $5,000,000. Plugging these numbers into the formula gives: \[ \text{Net Profit Margin} = \left( \frac{500,000}{5,000,000} \right) \times 100 \] Calculating this, you first divide $500,000 by $5,000,000, resulting in 0.1. Multiplying by 100 converts this into a percentage, yielding a net profit margin of 10%. This outcome highlights the proportion of sales revenue that remains as profit after all expenses have been deducted. Therefore, the correct answer reflects a healthy net profit margin, indicating effective management and a good return on sales.