Multiple Choice
Which one of the following will increase the profit margin of a firm?
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4. Merchandising Operations
Net Sales
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Which of the following is the best measure of a company's profitability?
A
Total Assets
B
Gross Profit
C
Net Sales
D
Net Income
Verified step by step guidance1
Understand the concept of profitability: Profitability measures how effectively a company generates profit relative to its revenue, assets, or equity.
Review the options provided: Total Assets, Gross Profit, Net Sales, and Net Income. Each term has a specific meaning in financial accounting.
Analyze Total Assets: Total Assets represent the resources owned by a company, but they do not directly measure profitability. They are part of the balance sheet and indicate financial position rather than performance.
Evaluate Gross Profit and Net Sales: Gross Profit is the difference between Net Sales and Cost of Goods Sold, which shows the profit from core operations but does not account for other expenses. Net Sales represent total revenue after deductions like returns and discounts, but they do not measure profitability directly.
Understand Net Income: Net Income is the final profit after deducting all expenses, taxes, and costs from total revenue. It is the most comprehensive measure of a company's profitability and reflects the overall financial performance.
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