Which profitability ratio shows the percentage of sales revenue that becomes net profit after all costs are paid?

• A. Net profit margin (NPM)
• B. Gross profit margin (GPM)
• C. Operating margin
• D. Return on assets

Answer: (A)

The main idea is to identify which ratio shows, for each sale, how much money is left as profit after every cost is paid. The net profit margin does this by calculating net profit as a percentage of sales revenue (net profit divided by revenue). It directly answers the question because it measures how much of each sales dollar becomes net profit after all expenses, taxes, and interest have been paid. For contrast, gross profit margin looks at profit after only the cost of goods sold, not all costs; operating margin looks at profit after operating expenses but before financing and taxes; return on assets measures profit relative to the assets used, not profit per sale.