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The profitability index reflects the value created per dollar of:
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14. Financial Statement Analysis
Ratios: Profit Margin
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A company has income before taxes of \$100,000. Net sales are \$400,000 and gross profit is \$300,000. What is the profit margin, assuming the company has a 40% tax rate?
A
15%
B
20%
C
25%
D
33%
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Calculate the tax expense by multiplying the income before taxes (\$100,000) by the tax rate (40%).
Subtract the tax expense from the income before taxes to determine the net income.
The profit margin is calculated by dividing the net income by the net sales.
Convert the result from the previous step into a percentage by multiplying by 100.
Compare the calculated profit margin percentage with the given options to identify the correct answer.
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