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 financial ratio is calculated by finding the net profit as a percentage of total revenue?

Current Ratio

Return on Assets

Debt-to-Equity Ratio

Profit Margin

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Verified step by step guidance

Understand the concept of Profit Margin: Profit Margin is a financial ratio that measures the percentage of net profit relative to total revenue. It indicates how much profit a company generates for every dollar of revenue earned.

Identify the formula for Profit Margin: The formula is Profit Margin = (Net Profit / Total Revenue) × 100. This formula expresses net profit as a percentage of total revenue.

Break down the components: Net Profit is the amount remaining after deducting all expenses, taxes, and costs from total revenue. Total Revenue is the total income generated from sales or services before any expenses are deducted.

Apply the formula: To calculate Profit Margin, divide the Net Profit by Total Revenue, then multiply the result by 100 to convert it into a percentage. Use MathML for the formula:

(\frac{Net Profit}{Total Revenue}) \times 100

Interpret the result: A higher Profit Margin indicates better profitability and efficiency in managing expenses relative to revenue. This ratio is useful for comparing profitability across companies or industries.