Question

The gross margin ratio: 1- Is also called the net profit ratio. 2- Indicates the percent of sales revenue remaining after covering the cost of the goods sold. 3- Is also called the profit margin. 4- Is a measure of liquidity and should exceed 2.0 to be acceptable. 5- Should be greater than 1 for merchandising companies.

Answer 1

Solution:
	Answer is 2- Indicates the percent of sales revenue remaining after covering the cost of the goods sold
Working Notes:
	Gross margin ratio = Gross margin/sales = (sales - cost of goods sold)/sales
	The gross margin ratio indicates the percent of sales revenue remaining after covering the cost of the goods sold
	Net profit ratio = net profit/sales is not equal to gross margin ratio
	Profit margin is net profit ratio
	Is not liquidity measure, current ratio, quick ratio , cash ratio are example of Liquidity ratios
	gross margin ratio cannot be more than 1 as gross margin is part of sales and gross margin ratio = gross margin /sales so it cannot be greater than 1
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