Question

A decrease in operating expenses would have which of the following effects on a company's profit margin? Multiple Choice There is not enough information given to determine the effect. Net profit margin would increase. Net profit margin would decrease. Net profit margin would remain unchanged.

Answer 1

Answer: Net profit margin would increase.

Explanation:

A company's net profit margin is the Net Profit divided by Revenue. Net Profit is derived by subtracting some expenses and liabilities from the Revenue such as Cost of Goods as well as operating expenses.

If operating expenses were to reduce therefore, there would be less subtractions from the revenue. The would translate to a higher Net Profit and when that is then divided by the Revenue, it will give a higher Net Profit Margin.