Concept explainers
(a)
Gross profit rate is the financial ratio that shows the relationship between the gross profit and net sales. Gross profit is the difference between the total revenues and cost of goods sold. It is calculated by using the following formula:
Profit margin measures the amount of net income earned from each dollar of sales revenue generated by a company. Thus, it shows the relationship between the net income and net sales. It is calculated by using the following formula:
To Compute: The missing amounts of Company Y and Company N.
(b)
To Calculate: The profit margin ratio and gross profit rate of Company Y and Company N.
(c)
To Discuss: The relative profitability of the two companies from the above data.
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Financial Accounting: Tools for Business Decision Making, 8th Edition
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