The following information applies to the questions displayed below.] Below are a

Question

The following information applies to the questions displayed below.] Below are amounts found in the income statements of three companies. Non- Sales Cost of Operating operating Income Tax Company Revenue Goods Sold Expenses Expenses Expense $2,200 0 3,200 $36,000 Henry 12,600 $5,200 $2,200 7,200 0 26,130 Grace 39,000 James 44,000 25,960 13,300 3,200 value 6.53 points 2-a. For each company, calculate the gross profit ratio Gross Profit Ratio Henry Grace James 2-b. Which company has the most favorable ratio? Henry Grace James

Explanation / Answer

PART-1)

1) Henry: 0.65

2) Grace: 0.33

3) James: 0.41

PART-2) Henry

Working:

Gross profit = (Gross profit / net sales) * 100

Gross profit = Sales - COGS

1) Henry: (36,000 - 12,600) / 36,000 = 65%

2) Grace: (39,000 - 26,130) / 39,000 = 33%

3) James: (44,000 - 25,960) / 44,000 = 41%

A high gross profit margin is best reflector that a company is in good financial health

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