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Basic Question 7 of 11
Assume that for several years, the net income of Delta-Baines (DB) has been rising as a percentage of the company's net sales. Analysts normally would interpret this to mean that ______
B. DB has been successful in efforts to control expenses.
C. DB's net sales are increasing faster than the rate of inflation and the portion of DB's total assets financed by creditors is decreasing.
A. DB's sales volume has been declining.
B. DB has been successful in efforts to control expenses.
C. DB's net sales are increasing faster than the rate of inflation and the portion of DB's total assets financed by creditors is decreasing.
User Contributed Comments 9
User | Comment |
---|---|
spartan | I don't get it. What does it mean when it says Ni rising as a percentage of company's net sale.? Can someone explain this please |
mackhulk | It's basically saying that the net profit margin (net income/net sales) is increasing. |
bokica | It is B, since the rise was simult. between the two (net income has been rising as a % of net sales), leaving the only reasonable comment that expenses were not drasticlly changing. |
o123 | **its just phrasing the question from the standpoint of a common size statement (everything is a percentage of something) to make comparison easier...so dont let it make it confusing. Its just like saying a company's net income is increasing. |
omer123 | Net Income = Net Sales - COGS - Expenses. If net income is increasing at a faster rate than Net Sales that means COGS and Expenses have been successfully controlled. Simple Logic. |
thekapila | its just an operating profitability ratio..which is making efforts into profit..so its B |
Mavizo | Thanks omer123!! Very good explanation!! |
farhan92 | what a name Delta Baines! |
mcoffin | Can someone explain C? |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
evaluate a company's financial performance using common-size income statements and financial ratios based on the income statement
CFA® 2024 Level I Curriculum, Volume 2, Module 2.