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 over revenue
    • Net profit over revenue
    • Revenue over cost
    • Gross profit over costs

  2. Which formula calculates the net profit margin percentage?

    • Gross profit over revenue
    • Revenue over profit
    • Net profit over costs
    • Net profit over revenue

  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. What does an increasing gross profit margin suggest?

    • Higher profit
    • More employees
    • Lower revenue
    • Higher overheads

  6. What does the average rate of return (ARR) measure for an investment?

    • Percentage annual return
    • Total sales revenue
    • Cash flow timing
    • Gross profit amount

  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%. How much profit remains from £100 of sales after all costs?

    • £8
    • £88
    • £92
    • £80

  12. An investment project has an ARR of 12%. What does this represent annually per £100 invested?

    • £12 average profit
    • £12 total revenue
    • £12 net cash
    • £12 gross margin

  13. Which action would most directly increase a business's gross profit margin?

    • Lower office rent
    • Lower supplier costs
    • Lower corporation tax
    • Higher bank interest

  14. High gross margin with very low net margin suggests what?

    • High overhead expenses
    • High tax rates
    • Low sales volume
    • Low cost of sales

  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 average rate of return useful when comparing projects?

    • Compares profitability
    • Calculates cash flow
    • Measures total revenue
    • Shows final payback

  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. What causes a business's net profit margin to fall even when total revenue increases?

    • Sales volume increasing
    • Tax rates falling
    • Costs rising faster
    • Selling prices rising

  20. What is a key limitation of using average rate of return (ARR) to evaluate an investment?

    • Ignores total profit
    • Ignores initial cost
    • Ignores average returns
    • Ignores profit timing

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