The gross margin ratio:
A)Is also called the net profit ratio.
B)Indicates the percent of sales revenue remaining after covering the cost of the goods sold.
C)Is also called the profit margin.
D)Is a measure of liquidity and should exceed 2.0 to be acceptable.
E)Should be greater than 1 for merchandising companies.

Question

Quizplus · Accepted Answer

The gross margin ratio is a measure of profitability and indicates the percentage of sales revenue that remains after all the costs of goods sold are covered. It is calculated by dividing the gross profit by net sales. Therefore, option B is the correct choice because it accurately describes the gross margin ratio. The other options are incorrect: option A implies that gross margin ratio and net profit ratio are the same, which is untrue. Option C is also incorrect because the profit margin is a different measure than the gross margin ratio. Option D is incorrect because the gross margin ratio is not a measure of liquidity. Finally, option E is also incorrect because the gross margin ratio should be positive, but it does not need to be greater than 1 for merchandising companies.

The Gross Margin Ratio