An extract from an outdoor equipment company's 2021 financial statements follows: Income statement Year ended December 31, 2021 Year ended December 31, 2020 Sales 27,764 26,982 Net income 1,132 (322) What was the company's profitability ratio for 2021? O A. 13.7% OB. 8.8% O C. 4.08% O D. 7.9%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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### Financial Statement Analysis

#### Example Question:

An extract from an outdoor equipment company’s 2021 financial statements follows:

**Income Statement**  
**Year Ended December 31, 2021** and **Year Ended December 31, 2020**

- **Sales:**  
  - 2021: 27,764  
  - 2020: 26,982
  
- **Net Income:**  
  - 2021: 1,132  
  - 2020: (322)

**Question:**  
What was the company's profitability ratio for 2021?

Choose the correct answer:
- A. 13.7%
- B. 8.8%
- C. 4.08%
- D. 7.9%

**Explanation:**
To determine the profitability ratio, we look at the net income as a percentage of sales. The formula for the profitability ratio is:

\[ \text{Profitability Ratio} = \left( \frac{\text{Net Income}}{\text{Sales}} \right) \times 100 \]

For 2021:
\[ \text{Profitability Ratio} = \left( \frac{1132}{27764} \right) \times 100 \approx 4.08\% \]

Hence, the correct answer is:
- C. 4.08%
Transcribed Image Text:### Financial Statement Analysis #### Example Question: An extract from an outdoor equipment company’s 2021 financial statements follows: **Income Statement** **Year Ended December 31, 2021** and **Year Ended December 31, 2020** - **Sales:** - 2021: 27,764 - 2020: 26,982 - **Net Income:** - 2021: 1,132 - 2020: (322) **Question:** What was the company's profitability ratio for 2021? Choose the correct answer: - A. 13.7% - B. 8.8% - C. 4.08% - D. 7.9% **Explanation:** To determine the profitability ratio, we look at the net income as a percentage of sales. The formula for the profitability ratio is: \[ \text{Profitability Ratio} = \left( \frac{\text{Net Income}}{\text{Sales}} \right) \times 100 \] For 2021: \[ \text{Profitability Ratio} = \left( \frac{1132}{27764} \right) \times 100 \approx 4.08\% \] Hence, the correct answer is: - C. 4.08%
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