Which profitability ratio measures the profit made after all expenses have been paid?

Which profitability ratio measures the profit made after all expenses have been paid?

• A. Gross profit percentage
• B. Return on capital employed
• C. Mark-up ratio
• D. Net profit percentage

Answer: (D)

The net profit percentage is the correct choice as it specifically measures the profit that remains after all expenses, including operating costs, taxes, and interest, have been deducted from total revenue. This ratio provides a clear indication of a company's overall profitability and efficiency in managing its expenses relative to its total sales. A higher net profit percentage signifies that a larger portion of revenue is being retained as profit, reflecting effective cost management and business operations. In contrast, the gross profit percentage only considers the profit made from sales after deducting the cost of goods sold but does not account for all other operating expenses. Similarly, the return on capital employed relates to the returns generated from capital investments but does not directly measure overall profitability as it includes considerations of capital structure and investment efficiency. The mark-up ratio focuses on the percentage increase applied to the cost of goods sold to determine selling prices, which does not provide a comprehensive view of profits after all expenses have been accounted for.

The net profit percentage is the correct choice as it specifically measures the profit that remains after all expenses, including operating costs, taxes, and interest, have been deducted from total revenue. This ratio provides a clear indication of a company's overall profitability and efficiency in managing its expenses relative to its total sales. A higher net profit percentage signifies that a larger portion of revenue is being retained as profit, reflecting effective cost management and business operations.

In contrast, the gross profit percentage only considers the profit made from sales after deducting the cost of goods sold but does not account for all other operating expenses. Similarly, the return on capital employed relates to the returns generated from capital investments but does not directly measure overall profitability as it includes considerations of capital structure and investment efficiency. The mark-up ratio focuses on the percentage increase applied to the cost of goods sold to determine selling prices, which does not provide a comprehensive view of profits after all expenses have been accounted for.