Multiple Choice
A company has income before taxes of $100,000. Net sales are $400,000 and gross profit is $300,000. What is the profit margin, assuming the company has a 40% tax rate?
14. Financial Statement Analysis
Ratios: Profit Margin
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
If XYZ Company has net sales of $500,000 and net income of $25,000, the profit margin is:
A
5%
B
10%
C
90%
D
95%
Verified step by step guidance1
Understand the concept of profit margin: Profit margin is a financial metric that shows the percentage of revenue that exceeds the costs of a company. It is calculated by dividing net income by net sales and then multiplying by 100 to get a percentage.
Identify the given values: In this problem, the net sales are $500,000 and the net income is $25,000.
Apply the profit margin formula: Profit Margin = (Net Income / Net Sales) * 100.
Substitute the given values into the formula: Replace Net Income with $25,000 and Net Sales with $500,000 in the formula.
Calculate the result: Perform the division and multiplication to find the profit margin percentage, which will help you choose the correct answer from the options provided.
Related Videos
Related Practice
Ratios: Profit Margin practice set
Problem sets built by lead tutorsExpert video explanations