Multiple Choice
Which of the following is NOT a profitability ratio?
33
views
14. Financial Statement Analysis
Ratios: Profit Margin
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following best describes the profit margin ratio?
A
The ratio of total assets to total sales
B
The ratio of net income to total assets
C
The ratio of gross profit to net sales
D
The ratio of net income to total sales
Verified step by step guidance1
Understand the concept of the profit margin ratio: It measures how much net income is generated as a percentage of total sales, indicating the efficiency of a company in converting sales into profit.
Identify the formula for the profit margin ratio: \( \text{Profit Margin Ratio} = \frac{\text{Net Income}}{\text{Total Sales}} \). This formula highlights the relationship between net income and total sales.
Clarify the components of the formula: Net income refers to the profit remaining after all expenses, taxes, and costs have been deducted from total revenue. Total sales represent the revenue generated from selling goods or services.
Compare the given options: Evaluate each option to determine which one aligns with the formula for the profit margin ratio. The correct option is 'The ratio of net income to total sales.'
Reinforce the importance of the profit margin ratio: It is a key indicator of a company's profitability and operational efficiency, helping stakeholders assess financial performance.
Related Videos
Related Practice
Ratios: Profit Margin practice set
Problem sets built by lead tutorsExpert video explanations