Widget has a higher EBIT/Revenue but lower net operating profit margin than Tool. Which of the following statements could explain this? As a percentage of sales:

Question

Quizplus · Accepted Answer

Net operating profit margin is calculated by subtracting operating expenses from revenues and dividing by revenues. If Widget has a higher EBIT/revenue but a lower net operating profit margin than Tool, this suggests that Widget has higher non-operating expenses such as interest and taxes. The statement that explains this scenario is option C, which says Widget has lower interest expense but higher taxes, implying that Widget has a higher tax rate than Tool.

Widget Has a Higher EBIT/Revenue but Lower Net Operating Profit