Series 79 practice questioneasyProfitability Ratios
Which ratio best evaluates how effectively a company turns sales into profits after all expenses, including taxes and interest, are paid?
- AReturn on equity
- BGross margin
- CNet margin✓ Correct answer
- DOperating margin
Explanation
Why C — Net margin
Net margin is Net Income/Sales and reflects profit after all expenses. Gross and operating margins are calculated before some expenses. ROE relates income to equity, not sales.
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