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Net Sales - (Cost of Goods Sold + General and Administration)
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Operating Profit Percentage =
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Net Sales
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Explanation of Operating Profit Percentage:
The Operating Profit Percentage measures how much of a profit the company is
generating from their main operations. Subtracting the Cost of Goods Sold
and General and Administration expenses from the Net Sales reveals estimated
operating expenses.
Importance of Operating Profit Percentage:
This ratio uncovers situations where companies are relying on actions other
than operations to generate an income. Investing activities and sales of
assets generate revenue, but these actions are not usually sustainable and
regular as maintaining a steady flow of sales. A high, or increasing
Operating Profit Percentage is usually a positive sign, showing the company is
increasingly able to generate sales from its operations.
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