Lesson 2.4.1b

2.4.1b Gross profit margin, net profit margin and average rate of return Quiz: Pearson Edexcel Business, Unit 9

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 2.4.1b, Gross profit margin, net profit margin and average rate of return: 20 multiple choice questions for the Pearson Edexcel GCSE Business (1BS0), Unit 9: Making financial decisions, written with Revision Ninja.

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The 20 questions

  1. What is the formula for gross profit margin?

    • (Gross profit divided by revenue) multiplied by 100
    • (Net profit divided by revenue) multiplied by 100
    • (Revenue divided by gross profit) multiplied by 100
    • (Gross profit divided by capital employed) multiplied by 100

  2. What is the formula for net profit margin?

    • (Gross profit divided by net profit) multiplied by 100
    • (Revenue divided by net profit) multiplied by 100
    • (Net profit divided by cost of sales) multiplied by 100
    • (Net profit divided by revenue) multiplied by 100

  3. A business has revenue of £200,000 and gross profit of £80,000. What is its gross profit margin?

    • 40%
    • 25%
    • 80%
    • 250%

  4. A business has revenue of £200,000 and net profit of £20,000. What is its net profit margin?

    • 10%
    • 20%
    • 100%
    • 1%

  5. A business's gross profit margin rose from 30% to 36%. What does this suggest?

    • It keeps more of each pound of sales as gross profit
    • Its expenses must have doubled in the same period
    • Its net profit must have fallen by six percentage points
    • It has sold fewer products than in the previous year

  6. What does average rate of return (ARR) measure?

    • The average annual profit from an investment as a percentage of the amount invested
    • The total revenue earned by a business in its first year of trading, before any costs
    • The proportion of a business's stock that is sold within one year of being purchased
    • The average wage paid to each employee across the whole business in a given year

  7. An investment of £50,000 is expected to earn an average annual profit of £7,500. What is the ARR?

    • 15%
    • 7.5%
    • 0.15%
    • 150%

  8. A business invests £80,000 in new equipment that is expected to produce an average annual profit of £12,000. What is the ARR?

    • 15%
    • 12%
    • 80%
    • 6.67%

  9. A business has a gross profit margin of 25% and revenue of £400,000. What is its gross profit?

    • £100,000
    • £400,000
    • £25,000
    • £160,000

  10. A business has net profit of £30,000 and revenue of £300,000. What is its net profit margin?

    • 100%
    • 10%
    • 30%
    • 3%

  11. A business has a net profit margin of 8%. What does this mean for every £100 of sales?

    • £8 is left as net profit after all costs
    • £8 is the gross profit before any costs are paid
    • £92 is kept as net profit after all costs
    • £8 is spent on advertising before any other cost

  12. A business has ARR of 12% on an investment. Which statement is correct?

    • On average, each £100 invested earns £12 of profit per year
    • Each £100 invested earns £12 of revenue in its first week only
    • Each £12 invested earns £100 of profit each year
    • The investment will be repaid in full within twelve months

  13. Which of these would most directly raise gross profit margin?

    • Raising the number of staff who work in the sales department to boost the level of sales
    • Negotiating a lower cost of sales from suppliers while keeping the same selling price
    • Increasing the rent paid for the shop premises each year while keeping the same selling price
    • Reducing the price of every product to attract more customers while keeping the same costs

  14. A business earns a gross profit margin of 45% and a net profit margin of 9%. What do the figures show?

    • Overheads take a large share of the gross profit
    • The business pays no cost of sales
    • The business has made a loss in the year
    • The business has no overheads at all

  15. A business has an ARR of 20% on a £40,000 investment. What is the average annual profit?

    • £2,000
    • £8,000
    • £80,000
    • £20,000

  16. Why is ARR useful when comparing two investment options?

    • It shows which option gives the higher average return relative to the amount invested
    • It shows the total cash the business will receive from each option over its full lifetime
    • It shows how quickly the money spent on each option will be paid back in full
    • It shows the exact profit each option will make after tax and all other costs are paid

  17. A business has revenue of £500,000 and a gross profit margin of 60%. What is its gross profit?

    • £833,333
    • £60,000
    • £200,000
    • £300,000

  18. A business has a net profit margin of 5% on revenue of £600,000. What is its net profit?

    • £3,000
    • £120,000
    • £30,000
    • £300,000

  19. Why might a business's net profit margin fall even though its revenue rises?

    • Revenue always reduces the net profit margin by the same amount in each year of trading
    • A rise in revenue means the business has to pay more tax on its profits each year
    • Costs and expenses may rise faster than revenue, so more of each pound is lost
    • Net profit margin is calculated from gross profit only, whatever the level of expenses

  20. Explain what a business should consider before relying on its ARR figure.

    • ARR is always exact and does not need any assumptions about future profit
    • ARR shows the amount of cash that the business holds at the end of the year
    • ARR is the same as the gross profit margin of the business each year
    • ARR uses average profit, so it ignores timing and the risk of the investment

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