For the profitability analysis, compute McDonough Products%u2019 (a) ratio of gr
ID: 2374357 • Letter: F
Question
For the profitability analysis, compute McDonough Products%u2019 (a) ratio of gross profit to net sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is McDonough Products%u2019 profit performance better or worse than the average for the industry? For the profitability analysis, compute McDonough Products%u2019 (a) ratio of gross profit to net sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is McDonough Products%u2019 profit performance better or worse than the average for the industry?Explanation / Answer
A)Gross profit to net sales
Gross profit=210,000
Net sales=700,000
Gross Profit Ratio=(210000/700000)*100=30%
B)Ratio of operating income to net sales:
Operating income=35000
Net sales=210000
Operating margin=(35000/210000)*100=16.6%
C)Profit margin=Net income/Net sales
=(28000/210000)*100=13.3%
Industry average Gross profit=43 %
Industry average operating margin=13 %
Industry average profit margin=11%
The company has worse performance than average of industry.!!
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