Hi,
If there is a decrease in cost of goods sold, there would obviously be an increase in the GPM, but would this affect the NPM in any way (as I've read that only expenses can affect the NPM).
Any help would be appreciated thanks.
It would indeed affect NPM. What's interesting is that you are partly correct in saying '
only expenses can affect the NPM', although obviously revenues affect it too. But your statement "
only expenses can affect the NPM" is correct as it includes COGS, because COGS is an expenses. And therefore a variation in COGS will affect NP and NPM.
If you are talking about Net Profit Margin, then start with the formula for calculating it:
NPM = Net Profit/Revenue
This formula can be further broken down into:
NPM = (Revenue - COGS - Expenses)/Revenue
The first thing you should notice is the COGS is a part of the formula, and therefore any increase or decrease in COGS will affect NPM.
What you need to remember is that anything that increases or decreases Gross Profit will increase or decrease Net Profit. Because GP is contained within the calculation of Net profit. There are multiple ways to look at NP below and all are correct.
NP = Revenue - Expenses (which include COGS)
NP = Revenue - COGS - Expenses
NP = GP (which is Rev - COGS) - expenses