Widget Has a Higher EBIT/Revenue but Lower Net Operating Profit

question 33

Multiple Choice

Widget has a higher EBIT/Revenue but lower net operating profit margin than Tool. Which of the following statements could explain this? As a percentage of sales:

• A) Widget has greater interest expense and taxes
• B) Widget has greater interest expense but lower taxes
• C) Widget has lower interest expense but higher taxes
• D) Widget has lower interest expense and taxes

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Definitions:

Operating Activities

Encompasses the revenue-generating activities of a business, including production, sales, and delivery of the company's product, as well as day-to-day operations.

Statement Of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, dividing cash flows related to operating, investing, and financing activities.

Cost Of Goods

The total expense directly associated with producing goods for sale, including material and labor costs.

Cash Paid

The actual outflow of cash from a company to settle obligations, such as paying for goods, services, or expenses.