Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Introduction to Ratios

Financial Accounting

14. Financial Statement Analysis

Introduction to Ratios

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Multiple Choice

Which of the following statements about an organization's operating profit margin is true?

It measures the proportion of revenue that remains after deducting operating expenses.

It is calculated by dividing net income by total assets.

It excludes depreciation and amortization from its calculation.

A higher operating profit margin always indicates lower operating efficiency.

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Verified step by step guidance

Understand the concept of operating profit margin: Operating profit margin is a financial metric that measures the proportion of revenue remaining after deducting operating expenses, such as wages, rent, and utilities, but before deducting interest and taxes.

Clarify the formula for operating profit margin: The formula is Operating Profit Margin = (Operating Income / Revenue) × 100. Operating income is derived by subtracting operating expenses from revenue.

Evaluate the first statement: 'It measures the proportion of revenue that remains after deducting operating expenses.' This aligns with the definition of operating profit margin and is correct.

Analyze the second statement: 'It is calculated by dividing net income by total assets.' This is incorrect because net income divided by total assets is the formula for Return on Assets (ROA), not operating profit margin.

Review the third and fourth statements: 'It excludes depreciation and amortization from its calculation' is incorrect because operating profit includes these expenses. 'A higher operating profit margin always indicates lower operating efficiency' is also incorrect, as a higher margin typically indicates better efficiency in managing operating expenses relative to revenue.