Explain operating profit margin - performance ratios, Strategic Management

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Q. Explain Operating profit margin - performance ratios?

Operating profit mar =              (PBIT / Turnover) x 100%

This is the ratio of operating profit to sales or turnover.  A high operating profit margin is due higher sales prices or low costs.  Other factors to consider include inventory valuation, overhead allocation, bulk discounts and sales mix. 

Low profit margins are not normally good news as it suggests poor performance.  But there may be other factors to consider relating to the business activities and industry.  For example the company may be entering a new market which requires low selling prices.


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