Ratio Firm B Industry Relative Analysis Proft Ratio1 2 Ratio2 Bad/OK/Good? Margi

Question

Ratio Firm B Industry Relative Analysis Proft Ratio1 2 Ratio2 Bad/OK/Good? Margin Suppose the table above is a part from an Excel worksheet. A,B,C and D are the column names while 1 and 2 are the row numbers In order to analyze Firm B's financial health, you would like to compare the gross profit margin of Firm B (Ratio1) to the industry average (Ratio2). You would like the Cell D2 to show"Bad" if Ratio! is less then 80% of Ration "Ok i Ratols within +. 20k of Ratio2, and "Good" if Ratio1 is higher than 120% of Ratio2. If Ratio10.8 Ratio2, then D2 "Bad If 0.8.Ratio2 _ Ratio 1

Explanation / Answer

The IF function calculates a value as follows -

=IF(argument, value if true, value if false)

Our argument would be : Ratio1 < 80% x Ratio2

Value if true : "Bad" (if you want the IF function to use words, then we use " ")

Value if false : For this we require another IF function as their is one more argument -

Argument for 2nd IF : Ratio1 < 120% x Ratio 2

Value if true for 2nd IF: "OK"

Value if false for 2nd IF : "Good"

Now, Ratio1 is in cell B2, Ratio2 in cell C2. 80% and 120% can be written as 0.80 and 1.20 respectively (Divide it by 100).

Summarizing the above, our function would be -

=IF(B2<0.80*C2, "Bad", IF(B2<1.20*C2, "OK", "Good"))

Now technically, in the 2nd IF function argument should be B2<=1.20 as it is Good if it is Higher than 120% and not equal or higher.

But, among the given options, Option 2 is the correct option.

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