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

Ratios: Profit Margin

Financial Accounting

14. Financial Statement Analysis

Ratios: Profit Margin

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Multiple Choice

Which two financial figures are used to calculate the profit margin ratio?

Net sales and total equity

Total assets and total liabilities

Net income and net sales

Gross profit and operating expenses

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Verified step by step guidance

Understand the concept of the profit margin ratio: The profit margin ratio measures how much of a company's net sales is converted into net income, indicating the efficiency of the company in generating profit.

Identify the formula for the profit margin ratio: The formula is Profit Margin Ratio = (Net Income / Net Sales) × 100. This formula highlights the relationship between net income and net sales.

Clarify the components: Net income is the profit remaining after all expenses, taxes, and costs have been deducted from total revenue. Net sales represent the total revenue generated from sales after deducting returns, allowances, and discounts.

Eliminate incorrect options: Total equity, total assets, total liabilities, gross profit, and operating expenses are not directly used in the calculation of the profit margin ratio. These figures are relevant for other financial metrics but not for this specific ratio.

Conclude the correct figures: The two financial figures used to calculate the profit margin ratio are net income and net sales, as they directly relate to the formula and the purpose of the ratio.