Please Refer to the Vertical Analysis of Income Statement Data

question 101

Multiple Choice

Please refer to the vertical analysis of income statement data shown below: $\begin{array}{|l|r|r|r|r|}\hline & 2017 & & 2016 & \\\hline \text { Rollar amounts in millions) } & \text { Amount } & \% \text { of total } & \text { Amount } & \text { \% of total } \\\hline \text { Revenues } & \$ 6355 & 100.0 \% & \$ 4920 & 100.0 \%\\\hline \text { Cost of sales } & 3370 & 53.0 \% & 2200 & 44.7 \% \\\hline \text { Gross profit } & \$ 2985 & 47.0 \% & \$ 2720 & 55.3 \% \\\hline \text { Expenses: } & & & & \\\hline\text {Sales and marketing expense }&\$ 675 & 10.6 \% & \$ 580 & 11.8 \% \\\hline\text { General and } & & \\\text { administrative expense } & 410 & 6.5 \%&425&8.6\%\\\hline \text { Research and } & & \\\text { development expense } & 470 & 7.4 \%&390&7.9\% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total expenses } & \$ 1955 & 30.8 \% & \$ 2090 & 42.5 \% \\\hline & & & & \\\hline \text { Profit before tax } & \$ 1030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Profit (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array}$ The figure 47.0% shown for Gross profit in 2017 signifies that:

• A)in 2017,gross profit is 47% of cost of sales.
• B)in 2017,gross profit is equal to 47% of profit.
• C)in 2017,gross profit is up 47% versus the previous year.
• D)in 2017,gross profit is 47% of revenues.

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Definitions:

Par-Common Stock

The face value of common stock as stated in the corporate charter, which may differ from its market value.

Stockholders' Equity

The remaining value in a corporation's assets once all its debts have been subtracted, indicating the ownership stake.

Account Balances

The amounts of money held in or owed on an account at a particular point in time.

Retained Earnings

The portion of a company's profits that is not distributed as dividends to shareholders but is kept within the company for reinvestment.