suppose that I have a company and I have given these data below for the first 3
ID: 2459264 • Letter: S
Question
suppose that I have a company and I have given these data below for the first 3 years. I need a small analysis for these 3 terms. 2-7 sentences for each one. I don't want forumals, I need only analysis on what they do and what would happen given the data below. like for example what happen when gross profit is high or low and so on so forth "PLEASE IN YOUR OWN WORDS, DONT COPY FROM THE INTERNET".
1- Gross Profit Ratio. Where Gross Profit Ratio for [year one is 66%] [year two: 61%] and [year three is 33%]
2- Operating Income. Where Operating Income for [year one is 255,222] [year two is 170,000] and [year three is -400,000]
3- Operating Margin. Where Operating Margin for [year one is 12.22%] [year two is 7.23%] and [year three is -13.55%]
Explanation / Answer
1) Gross profit ratio measures how profitable a company can sell its inventory. It only makes sense that higher ratios are more favorable.Higher ratios means the company is selling their inventory at a higher profit percentage.
Higher ratios can typically be achived by two ways, one way is to buy the inventory very cheap and the second way retailers can achieve a higher ratio is by marking their goods up higher. A company with high gross margin ratios means that the company will have more money to pay operating expenses salaries, rent. Since this ratio measures the profits from selling inventory.The gross profit is drastically down in the 3rd year the company should take necessary measures.
2) Operating income is an indirect measure of efficiency that is higher the operating income the more profitable a company's core business is. operating income provides investment analysis with useful information for evalutong the company's operating performance without regard to interest expense or tax rates. It is also important to note that some industries have higher labour or material cost then others. this is why comparing operating income or operating margin is generally most meaningful among companies with in the same industry.
3) This ratio is important to both creditors and investors because it helps to show how strong and profitable a companies operations are. In this situation the operating magin is increasing so that investors and creditore are put some reliability on the company. In the present situation the company has a operating margin of 13.55% which is not bad for investors and creditors. Normally the operating is good when the operating margin is more or less 30%,so the company would improve its operating margin ratio
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