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 is the correct formula for calculating net profit margin?

\( \text{Net Profit Margin} = \frac{\text{Operating Income}}{\text{Net Sales}} \times 100 \)

\( \text{Net Profit Margin} = \frac{\text{Gross Profit}}{\text{Net Sales}} \times 100 \)

\( \text{Net Profit Margin} = \frac{\text{Net Sales}}{\text{Net Income}} \times 100 \)

\( \text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Net Sales}} \times 100 \)

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Verified step by step guidance

Step 1: Understand the concept of Net Profit Margin. It is a financial metric that shows the percentage of net income generated from net sales, indicating the profitability of a company.

Step 2: Recall the formula for Net Profit Margin. The correct formula is: \( \text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Net Sales}} \times 100 \). This formula calculates the proportion of net income relative to net sales, expressed as a percentage.

Step 3: Analyze the incorrect options provided. Option 1 uses Operating Income instead of Net Income, which measures operational profitability but not overall profitability. Option 2 uses Gross Profit, which excludes operating and other expenses, making it unsuitable for calculating net profit margin. Option 3 reverses the numerator and denominator, which is mathematically incorrect for this metric.

Step 4: Confirm the correct formula. Net Profit Margin focuses on Net Income (total profit after all expenses, taxes, and costs) divided by Net Sales (total revenue after returns and allowances). Multiplying by 100 converts the ratio into a percentage.

Step 5: Apply the formula in practice. To calculate Net Profit Margin, ensure you have accurate values for Net Income and Net Sales from the financial statements. Plug these values into the formula and perform the calculation to determine the percentage.