DECA Marketing Cluster Practice Exam

What measures the excess of revenue from sales over costs in a business?

1. Operating Expense

2. Profit Margin

3. Net Income

4. Gross Revenue

The correct answer is: Profit Margin

The concept being described is the profitability of a business, which is measured by the profit margin. Profit margin represents the difference between the revenue generated from sales and the costs associated with producing and selling those goods or services. It is typically expressed as a percentage, allowing businesses to understand how much profit they make for each dollar of sales. Profit margin is crucial for evaluating a company's financial health because it assesses how well the company can convert sales into actual profit after covering the costs. This metric is essential for making strategic decisions about pricing, cost control, and overall business strategy. The other options, while related to financial performance, do not specifically measure the excess revenue over costs in the same way. Operating expenses refer to the costs incurred during regular business operations and do not account for revenue, while net income represents total earnings after all expenses, taxes, and costs have been deducted, indicating overall profitability rather than just revenue versus costs. Gross revenue simply refers to total sales before any deductions and does not consider costs at all.