Word bank: fragility · margins · operating · revenue

1. Gross → → net: three levels of profit.
2. Margin = profit ÷ .
3. Margins reveal the kind of business and its .
4. Thin leave little room for rising costs.

1. A company has $500,000 in revenue and $300,000 in cost of goods sold.

   1. What's its gross margin?

   • A. 60%
   • B. $200,000
   • C. 40%
   • D. 30%

2. 2. Why do software companies often have very high gross margins?

   • A. They don't pay employees.
   • B. Delivering one more copy of software costs very little.
   • C. They don't have customers.
   • D. Taxes don't apply to software.

3. 3. A business with a 2% net margin is more vulnerable to rising costs than one with a 30% net margin.

   True/False

1. 1. Revenue $200,000; cost of goods sold $120,000; operating expenses $50,000; interest and taxes $10,000. Find gross profit, operating profit, net profit, and the net margin.

2. 2. A company with $1 million in revenue raises its net margin from 5% to 8%. How much more profit does it make?

1. 1. Would you rather run a high-margin business with few customers or a low-margin business with many? Why?

2. 2. What could a grocery store do to protect its thin margins?