Question of the Week

If ABC Company had the following Income Statement figures, what is the Operating Margin of ABC Company?
Net Sales = $1,000,000; Cost of Goods Sold = $400,000; Net Profit = $300,000; Depreciation = $100,000

A) 40 percent
B) 10 percent
C) 30 percent
D) 20 percent


Answer:

The correct answer is c):

The operating margin is a very useful test of the efficiency of corporate management. Operating margin is determined by dividing net profit into net sales. The only way to determine if a companies operating margin is good is to compare it to that of other companies in the same industry.