Gross profit margin (Gross profit/Sales) is an important determinant of NOPAT. Identify two factors that can cause gross profit margin to decline. Is a reduction in the gross profit margin always bad news

Please find the detailed answer in the explanation section.

Explanation:

Gross profit margins can decline because:

1. When the industry becomes more competitive and/or the company's products have lost their competitive advantage so that the company will have to reduce prices inorder to sell more.

2. Product costs have increased. These are the cost to produce goods and services. Examples are direct labour, direct materials etc. Gross profit will decline if these increases

Declining gross profit margins are usually viewed negatively i.e the reduction in the gross profit margin is always a bad news for a company.

What causes gross profit margin to decline? - when the competition in the industry is high and the company is losing the competition in the market.

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