Entrepreneurship and Small Business (ESB) Certification Practice Exam

What term refers to the net profit the company wants to make from a sale, typically represented as a percentage?

1. Cost price

2. Gross revenue

3. Profit margin

4. Sales price

The correct answer is: Profit margin

The term that refers to the net profit a company aims to achieve from a sale, usually expressed as a percentage, is known as the profit margin. Profit margin is a critical financial metric that indicates how much of each dollar of sales contributes to the net profit after all costs and expenses have been deducted. It helps entrepreneurs and business owners assess the profitability of their products or services, allowing for strategic pricing and cost management decisions. Understanding profit margin is essential for evaluating how effectively a company is generating profit relative to its sales revenue, which is vital for sustaining business growth and performance. The other terms mentioned in the question serve different purposes in financial contexts. Cost price typically refers to the total amount incurred to produce a product, gross revenue indicates the total income generated from sales before any deductions, and sales price is the amount charged to customers for the product or service. Each of these plays a role in a company's overall financial health, but they do not specifically capture the concept of profit realized as a percentage of sales.