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

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Which of the following best describes the ratio of net income to total sales?

Operating margin

Net profit margin

Gross profit margin

Net sales ratio

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Verified step by step guidance

Understand the concept of net income: Net income is the profit a company earns after deducting all expenses, including operating expenses, interest, taxes, and other costs, from its total revenue.

Understand the concept of total sales: Total sales refer to the revenue generated from selling goods or services before any deductions such as returns, allowances, or discounts.

Learn the formula for net profit margin: Net profit margin is calculated as \( \text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Total Sales}} \times 100 \). This ratio expresses net income as a percentage of total sales.

Compare the given options: Operating margin focuses on operating income relative to sales, gross profit margin focuses on gross profit relative to sales, and net sales ratio is not a standard term for this calculation. The correct term for the ratio of net income to total sales is 'Net profit margin.'

Conclude that the net profit margin is the best description for the ratio of net income to total sales, as it directly measures profitability relative to sales.