The formula for calculating profit margin is:
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A. B. C. D.C
Profit margin, also called return on net sales, is calculated by dividing net income by net sales. This ratio measures the average portion of each dollar of revenue that ends up as profit.
The correct answer is C. net income divided by net sales.
The profit margin is a financial metric that measures the profitability of a company by indicating the percentage of profit generated from its sales. It is an important measure used by investors, analysts, and managers to assess a company's profitability and efficiency.
The formula for calculating profit margin is:
Profit Margin = (Net Income / Net Sales) x 100
Now, let's break down each component of the formula:
Net Income: Net income, also known as net profit or net earnings, represents the amount of money a company has earned after deducting all expenses, including operating expenses, interest, taxes, and any other costs. It is the final figure of the income statement, which reflects the overall profitability of the company.
Net Sales: Net sales, also referred to as revenue or sales, represents the total amount of money generated from the sales of goods or services by a company during a specific period. Net sales are calculated by deducting any returns, discounts, or allowances from the gross sales.
By dividing the net income by net sales and multiplying the result by 100, we obtain the profit margin as a percentage. This ratio indicates the portion of each dollar of sales that is converted into profit.
Answer choice C, "net income divided by net sales," correctly represents the formula for calculating profit margin.