Ratio analysis of a company’s performance as shown in its profit and loss account may show a decline in profit margin (gross profit as a percentage of sales revenue) compared with the previous period.Required:Give five possible reasons for a decline in gross profit as a percentage of sales revenue from one year to the next, briefly explaining for each why it has the effect of reducing the percentage.Note: You are not required to consider factors, which reduce gross profit itself, only those that reduce the gross profit percentage of sales.

The decrease in the gross profit ratio may be due to the following reasons: Decrease in the selling…

Answered: Ratio analysis of a company’s…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter5: Evaluating Operating And Financial Performance

Section: Chapter Questions

Problem 7EP

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Ratio analysis of a company’s performance as shown in its profit and loss account may show a decline in profit margin (gross profit as a percentage of sales revenue) compared with the previous period.

Required:

Give five possible reasons for a decline in gross profit as a percentage of sales revenue from one year to the next, briefly explaining for each why it has the effect of reducing the percentage.

Note: You are not required to consider factors, which reduce gross profit itself, only those that reduce the gross profit percentage of sales.

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