Padua Inc. reports the following information: 2019 2018 Net sales $3,000 $3,200 Net...

Question:

Padua Inc. reports the following information:

2019 2018
Net sales $3,000 $3,200
Net income $120 $140
Gross profit $800 $890

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.

Income Statement:

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.


2019 2018
Net sales $3,000 $3,200
Gross profit $800 $890
Gross Profit Ratio (Gross profit / Net Sales) 26.7% 27.8%
Net income $120 $140
Net Profit Ratio (Net profit / Net Sales) 4.0% 4.4%

Learn more about this topic:

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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
42K

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