If an Analyst Wants to See How Gross Profit of a Company

question 47

True/False

If an analyst wants to see how gross profit of a company has changed from one year to the next, vertical analysis would be used.

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, showing the impact of fixed costs on earnings.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from gross profit, not including non-operating income and expenses, interest, and taxes.

Break-even Point

A situation where overall expenses and earnings balance out, leaving no profit or deficit.

Fixed Expenses

Recurring costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.