Explanation Gross profit percentage : The percentage of gross profit generated by every dollar of net sales is referred to as gross profit percentage. This ratio measures the profitability of a company by quantifying the amount of income earned from sales revenue generated after cost of goods sold are paid. The higher the ratio, the more ability to cover operating expenses. It is computed by the formula: Gross profit percentage = Gross profit on sales Net sales Compute the gross profit percentage for Company SE. Gross profit percentage = Gross profit on sales ( Refer Table ( 1 ) ) Net sales = $ 70 , 000 $ 180 , 000 = 38.88 % Return on sales ratio : This ratio gauges the operating profitability of a company by quantifying the net income earned from business operations after all expenses are paid. This ratio is also called as net income percentage. It is computed by the formula: Return on sales ratio = Net income Net sales Compute the return on sales ratio for Company SE

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Author: Wallace, Nelson, Christensen, Ferris

Publisher: Cambridge

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Chapter 5, Problem 6AE

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Compute gross profit percentage and return on sales ratio of Company SE.

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