A high expenses to income ratio and low savings amount are ___ when analyzing net sales and overall financial health.

• A. Signs of increasing net sales
• B. Unrelated to net sales analysis
• C. Evidence of strong profitability
• D. Indicators of poor financial management

Answer: (D)

Verified step by step guidance

1. Understand the concept of 'expenses to income ratio': This ratio compares total expenses to total income. A high ratio indicates that a significant portion of income is being consumed by expenses, leaving little room for savings or reinvestment.
2. Analyze the impact of low savings: Low savings suggest that there is insufficient surplus income after covering expenses, which can be a sign of poor financial planning or management.
3. Relate the expenses to income ratio and savings to financial health: A high expenses to income ratio and low savings amount typically indicate poor financial management, as they reflect an inability to control expenses or allocate resources effectively.
4. Evaluate the connection to net sales: Net sales represent the revenue generated after deducting returns, allowances, and discounts. While net sales are important for profitability, the expenses to income ratio and savings amount are more directly related to financial management rather than net sales analysis.
5. Conclude that the correct interpretation is 'Indicators of poor financial management': This aligns with the idea that high expenses relative to income and low savings are signs of ineffective financial practices, which can negatively impact overall financial health.