Firms Should Compare Their Gross, Operating and Net Profit Margins

question 68

Multiple Choice

Firms should compare their gross, operating and net profit margins to past years and other companies in order to

• A) evaluate the firm's performance.
• B) identify expenses that seem to be out-of-line
• C) better manage the reporting of the firm's earnings.
• D) Both A and B.

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Definitions:

Planning Budget

A financial plan that estimates the revenue and expenses for a specific period, often used for setting performance expectations.

Revenue and Spending Variance

The difference between the budgeted and actual amounts of revenue and expenditure over a specific period.

Net Operating Income

Income from a company's core business operations, excluding deductions of interest and taxes.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels of the business, allowing for more accurate budgeting and performance evaluation.