A ratio that measures the average portion of each dollar of revenue that results in profit is
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A. B. C. D.B
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 ratio that measures the average portion of each dollar of revenue that results in profit is known as the profit margin. Therefore, the correct answer is A. profit margin.
The profit margin is a financial metric used to assess a company's profitability and efficiency in generating profits from its sales revenue. It indicates how much profit is generated per unit of revenue earned by the company. The higher the profit margin, the more efficiently the company is converting its sales into profits.
To calculate the profit margin, you divide the net profit by the revenue and express the result as a percentage. The formula for profit margin is as follows:
Profit Margin = (Net Profit / Revenue) * 100
By examining the profit margin, investors and analysts can gain insights into a company's ability to control costs, manage pricing, and generate profits relative to its revenue. It is an important metric for comparing the profitability of different companies within the same industry or assessing a company's performance over time.
Return on sales (ROS), also known as operating profit margin, is a similar profitability ratio but focuses specifically on the operating profit generated from sales. It measures the efficiency of a company's operations in generating profit, excluding non-operating income and expenses. While return on sales is a valid ratio, it is not the ratio that directly measures the average portion of each dollar of revenue that results in profit.
Therefore, the correct answer is A. profit margin, and option B, which states that both profit margin and return on sales are correct, is incorrect.