DECA Retail Merchandising Practice Exam

In financial terms, how does net profit compare to net sales?

1. It is always larger than net sales

2. It is always smaller than net sales

3. It is equal to net sales

4. It fluctuates above and below net sales

The correct answer is: It is always smaller than net sales

Net profit represents the amount of money a business has left after all its expenses, taxes, and costs have been deducted from its total revenue, which is often referred to as net sales. In almost every case, net profit will be smaller than net sales because net sales account for the total revenue generated from sales, while net profit reflects the earnings after the costs of generating those sales are subtracted. This distinction is fundamental in financial analysis. For instance, if a company generates $1,000 in net sales but incurs $800 in expenses, the net profit would be $200. Thus, net profit does not exceed net sales and is a reflection of the efficiency and profitability of the business after operational costs are considered.