DECA Retail Merchandising Practice Exam

Which of the following best describes net profit?

1. Revenue minus Cost of Goods Sold

2. Revenue minus operating expenses and taxes

3. Gross Margin minus operating expenses

4. Total Sales minus returns

The correct answer is: Revenue minus operating expenses and taxes

Net profit is defined as the amount of money a company retains after all operating expenses, interest, taxes, and costs have been subtracted from total revenue. This metric provides a clear picture of a company's profitability and is critical for evaluating its financial performance over a certain period. The correct choice highlights that net profit is derived from total revenue after accounting for all operating expenses and taxes, making it a comprehensive measure of profitability. It reflects how effectively a company can turn revenue into profit after all expenses are considered. This is important for stakeholders who are interested in understanding the actual financial health of the business. The other options focus on different financial metrics. One describes gross profit or margin, which considers only the direct costs of goods sold and does not account for other expenses. Another might relate to sales rather than profit, addressing aspects that don't include overall business expenses and taxes. Thus, they do not fully encompass the definition of net profit as effectively as the chosen response.