Calculations Gross Profit Margin = (Gross Profit / Sales) x100
2012
938,913 / 1,139,350 = 0.824 x100 = 82.4
2013
1,234,538 / 1,498,725 = 0.823 x100 = 82.37 (82.4) According to The Gross Profit Margin has stayed stable from 2012 to 2013, because although the Gross Profit has increased significantly in 2013, the sales have also increased proportionately.
Net Profit Margin = (Net Profit before interests and taxation / Sales) x100
2012
(280,101+18,275) / 1,139,350 x100 = 298,376 / 1,139,350 = 0.261 x100 = 26.18 (26.2)
2013
(430,446+57,025) / 1,498,725 x100 = 487,471 / 1,498,725 = 0.326 x100 = 32.6
The Net Profit Margin has increased significantly from 2012 to 2013 because Gross profit has increased as well
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This has reduced the gross profitability of sales, but the extra volume has helped to make sales more profitable at the operating profit level.
Gearing has important implications for management because if the company is high geared it means that managers must react quickly if revenues start to fall. Shareholders will also be interested in the level of gearing, because any changes in revenue could have a dramatic effect on their fortunes if the company is high geared. If revenues and profits increase at the same time, the company will be proportionately much better off.
The managers of a highly geared company must therefore be careful to maintain the level of profits and sales and must react quickly if revenues or profits start to fall. However, if revenues and profits increase, the shareholders in a highly geared company will be proportionately much better off. This volatility of returns which is caused by the existence of higher levels of gearing reflects the financial risk associated with high gearing.