Question

Use the following information to compute profit margin for each separate company athrough e.

Net Income Net Sales Net Income Net Sales

a. \( 4,361 \) 44,500 d. \(65,646 \)1,458,800

b. 97,706 398,800 e. 80,132 435,500

c. 111,281 257,000

Which of the five companies is the most profitable according to the profit margin ratio? Interpret the

profit margin ratio for company c.

Short answer

Answer:

Company C is more profitable according to the profit margin ratio. Profit margin ratio of Company C as compared to the other companies.

Step-by-step solution

Definition of net profit margin

The percentage of profit in revenue is known as the net profit margin.

Calculation of net profit margin

Company A:

$$\begin{gathered} \mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{}\mathbf{Income}}{\mathbf{Net}\mathbf{}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{361}}{\mathbf{\$}\mathbf{44}\mathbf{,}\mathbf{500}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{9}\mathbf{.}\mathbf{8}\mathbf{\%} \end{gathered}$$

Company B:

$$\begin{gathered} \mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{}\mathbf{Income}}{\mathbf{Net}\mathbf{}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{97}\mathbf{,}\mathbf{706}}{\mathbf{\$}\mathbf{398}\mathbf{,}\mathbf{800}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{24}\mathbf{.}\mathbf{5}\mathbf{\%} \end{gathered}$$

Company C:
$$\begin{gathered} \mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{}\mathbf{Income}}{\mathbf{Net}\mathbf{}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{111}\mathbf{,}\mathbf{281}}{\mathbf{\$}\mathbf{257}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{43}\mathbf{.}\mathbf{3}\mathbf{\%} \end{gathered}$$

Company D:

$$\begin{gathered} \mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{}\mathbf{Income}}{\mathbf{Net}\mathbf{}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{65}\mathbf{,}\mathbf{646}}{\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{458}\mathbf{,}\mathbf{800}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{4}\mathbf{.}\mathbf{5}\mathbf{\%} \end{gathered}$$

Company E:

$$\begin{gathered} \mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{}\mathbf{Income}}{\mathbf{Net}\mathbf{}\mathbf{Sales}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{132}}{\mathbf{\$}\mathbf{435}\mathbf{,}\mathbf{500}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{18}\mathbf{.}\mathbf{4}\mathbf{\%} \end{gathered}$$