Padua Inc. reports the following information:
Which of the following is true?
a. There has been an increase in net profit ratio in 2019.
b. There has been a decrease in net profit ratio in 2019.
c. There has been an increase in gross profit ratio.
d. None of the above.
The income statement is the statement that reports the overall net profit or loss of a firm for a specific accounting period. The income is calculated by subtracting sales and expenses.
Answer and Explanation:
The answer is b. There has been a decrease in the net profit ratio is 2019.
The gross profit ratio is calculated by dividing gross profit by sales. The ratio indicates the percentage of sales remaining after accounting for direct costs for revenue generation. The gross profit ratio declined from 27.8% of net sales in 2018 to 26.7% of sales in 2019.
The net profit ratio is calculated by dividing net income by sales. The ratio indicates the percentage of sales remaining after accounting for all expenses (operating, direct, and miscellaneous) which have affected the company over the specified accounting period. The net profit ratio declined from 4.4% in 2018 to 4.0% for 2019.
|Gross Profit Ratio (Gross profit / Net Sales)||26.7%||27.8%|
|Net Profit Ratio (Net profit / Net Sales)||4.0%||4.4%|
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from Accounting 101: Financial AccountingChapter 2 / Lesson 2