Question

You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey?
1)For every $19 in sales, $100 ended up in Net Income.
2)For every $100 in sales, $19 ended up in Net Income.
3) 19% of Net Income was generated by Profit Margin.
4) 19% of sales were generated by Net Income.

Answer 1

Answer:

2)For every $100 in sales, $19 ended up in Net Income.

Explanation:

The Profit Margin is determined as the ratio between net income and revenue.

In Penelope's Candy Store, revenue is given by the gross amount received from sales. The net income is the amount that remains from sales after taxes and expenses are deducted.

Therefore, a 19% profit margin means that for every $100 in sales, $19 ended up in Net Income.