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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Ratio Analysis

Dobby’s income statement lists net sales of $179,000 and a gross margin of $111,000. All other expenses not included in the gross margin totaled $46,500.

Required:

1. Calculate Dobby’s gross profit ratio.

2. Calculate Dobby’s net profit margin ratio.

To determine

(a)

Gross Profit Ratio:

The gross margin ratio is a type of profitability ratio which is used to measure the returns and earning after direct expenses and compute the ratio in respect to the sales of the business. In other words, this ratio measures gross earnings ability for covering the administrative and selling expenses.

To calculate:

The gross profit ratio and net profit ratio.

Explanation

The net sale of $1,79,000 and gross profit is $1,11,000 is given in the question.

The computation of gross profit margin is as follows:

Gross Profit Margin=Gross Profit

To determine

(b)

Net Profit Margin Ratio:

The net margin ratio is a type of profitability ratio which is used to measure the returns and earning after all expenses i.e. net earnings and compute the ratio in respect to the sales of the business.

To calculate:

The net profit margin ratio.

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