A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________.

Question

Quizplus · Accepted Answer

The gross profit margin represents the profitability of a firm's sales after deducting the cost of goods sold. If a firm's gross profit margin meets industry standards, it indicates that it is generating sufficient revenue from sales. The net profit margin, however, represents the profitability of a firm after deducting all expenses, including general and administrative expenses, dividend payments, and principal payments. Therefore, if a firm's net profit margin is below industry standards despite meeting industry standards for gross profit margin, it suggests that the firm may have excessive general and administrative expenses that are eating into its profits.

A Firm with a Gross Profit Margin Which Meets Industry