If XYZ Company has net sales of \$500,000 and net income of \$25,000, the profit margin is:

• A. 5%
• B. 10%
• C. 90%
• D. 95%

Answer: (A)

Verified step by step guidance

1. Understand the concept of profit margin: Profit margin is a financial metric that shows the percentage of revenue that exceeds the costs of a company. It is calculated by dividing net income by net sales and then multiplying by 100 to get a percentage.
2. Identify the given values: In this problem, the net sales are \$500,000 and the net income is \$25,000.
3. Apply the profit margin formula: Profit Margin = (Net Income / Net Sales) * 100.
4. Substitute the given values into the formula: Replace Net Income with \$25,000 and Net Sales with \$500,000 in the formula.
5. Calculate the result: Perform the division and multiplication to find the profit margin percentage, which will help you choose the correct answer from the options provided.