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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

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

It excludes depreciation and amortization from its calculation.

It reflects the company's ability to pay its short-term liabilities.

It measures the percentage of revenue remaining after deducting only operating expenses.

It is calculated by dividing net income by total assets.

Previous problemNext problem

Verified step by step guidance

Understand the concept of operating profit margin: Operating profit margin is a financial metric that measures the percentage of revenue remaining after deducting operating expenses, such as cost of goods sold (COGS), wages, and other day-to-day expenses, but before deducting interest and taxes.

Clarify what operating expenses include: Operating expenses are costs directly related to the core operations of the business. They do not include non-operating expenses like interest, taxes, or extraordinary items.

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

Evaluate the incorrect statements: Depreciation and amortization are included in operating expenses, so the first statement is false. The second statement refers to liquidity, not operating profit margin. The fourth statement confuses operating profit margin with return on assets (ROA), which is calculated as Net Income / Total Assets.

Confirm the correct statement: The correct statement is 'It measures the percentage of revenue remaining after deducting only operating expenses,' as this aligns with the definition and formula of operating profit margin.