Using the given information, what is the profitability ratio for the company if the net income is $42,000 and revenue is $890,000?

Using the given information, what is the profitability ratio for the company if the net income is $42,000 and revenue is $890,000?

• A. 5.00%
• B. 4.71%
• C. 4.0%
• D. 3.5%

Answer: (B)

To determine the profitability ratio, also known as the profit margin, you calculate it by dividing the net income by the total revenue and then multiplying by 100 to express it as a percentage. Given the net income of $42,000 and revenue of $890,000, the calculation is as follows: Profitability Ratio = (Net Income / Revenue) x 100 Substituting the values: Profitability Ratio = ($42,000 / $890,000) x 100 Calculating this gives: Profitability Ratio = 0.047191 x 100 = 4.7191% When rounded to two decimal places, this results in a profitability ratio of approximately 4.71%. Thus, the correct answer is indeed 4.71%, which aligns with option B. This ratio indicates that for every dollar of revenue, the company retains about 4.71 cents as profit, showcasing its efficiency in generating profit relative to its sales.

To determine the profitability ratio, also known as the profit margin, you calculate it by dividing the net income by the total revenue and then multiplying by 100 to express it as a percentage.

Given the net income of $42,000 and revenue of $890,000, the calculation is as follows:

Profitability Ratio = (Net Income / Revenue) x 100

Substituting the values:

Profitability Ratio = ($42,000 / $890,000) x 100

Calculating this gives:

Profitability Ratio = 0.047191 x 100 = 4.7191%

When rounded to two decimal places, this results in a profitability ratio of approximately 4.71%.

Thus, the correct answer is indeed 4.71%, which aligns with option B. This ratio indicates that for every dollar of revenue, the company retains about 4.71 cents as profit, showcasing its efficiency in generating profit relative to its sales.