You are the CEO of Company A and you are using an industry leader (Leader Company)for benchmarking.Company A is much smaller than Leader Company in terms of total assets and total sales revenue.You should compare the:
A)gross profit of Company A to the gross profit of Leader Company.
B)net income of Company A to the net income of Leader Company.
C)net sales of Company A to the net sales of Leader Company.
D)net income to net sales ratio of Company A to net income to net sales ratio of Leader Company.

Question

Quizplus · Accepted Answer

Comparing the net income to net sales ratio is the best choice for benchmarking as it considers the profitability of the companies relative to their revenue. This ratio is also more comparable across companies of different sizes, as it provides a standardized measure of profitability. Comparing gross profit or net sales alone does not provide a clear depiction of the company's profitability. Net income comparison may be affected by factors such as differences in tax rates or interest expense, which may vary significantly between Company A and Leader Company.

You Are the CEO of Company a and You Are