Assume that two firms have the same operating profit margin of 28%. Firm A has a net profit margin of 14%, however, while Firm B has a net profit margin of 18%. Which of the following
Is the probable reason for this?

Question

Quizplus · Accepted Answer

Since both firms have the same operating profit margin but different net profit margins, the difference must come from expenses deducted after calculating the operating profit. Interest expense is one such cost deducted after operating profit to arrive at net profit. Higher interest expenses for Firm A would reduce its net profit margin compared to Firm B. Costs of goods sold and depreciation and amortization expenses affect operating profit, not the difference between operating and net profit margins directly in this context.

Assume That Two Firms Have the Same Operating Profit Margin