The profit margin ratio ________.
A) focuses on the liquidity of the business
B) is computed by dividing net sales by net income
C) shows how much gross profit a business earns on every $1.00 of sales
D) is often compared to the industry average

Question

Quizplus · Accepted Answer

The profit margin ratio is a measure of profitability, not liquidity, and it is calculated by dividing net income by net sales, not the other way around. It shows how much net profit a business earns on every $1.00 of sales. Comparing this ratio to the industry average helps in assessing a company's performance relative to its peers.

The Profit Margin Ratio ________