In 2012, C Co's gross profit ratio was 70.4% and their profit margin was 18.8%. In 2012, P Co's gross profit ratio was 58.3% and their profit margin was 8.9%. Which of the following is false?
A) C Co looks to be a better investment than P Co.
B) The major reason for P Co's lower profit margin is that their selling, general and administrative expenses were double the percentage of sales compared to C Co's percentage.
C) C Co's cost of goods sold was a lower percentage of sales than P Co's.
D) In 2012, C Co's profit margin was 111.2% greater than P Co's which would contribute to a higher return on total investment.

Question

Quizplus · Accepted Answer

While C Co's numbers appear better overall, it is not necessarily true that it is a better investment. There are other factors to consider, such as the industry, market trends, management, and future growth potential. However, we can conclude that choice B is false because P Co's lower profit margin is not solely due to their selling, general and administrative expenses being double, as suggested. It could also be due to a higher cost of goods sold or lower sales revenue.

In 2012, C Co's Gross Profit Ratio Was 70