Final answer:
The net margin ratio of a company, which indicates how much profit it retains from sales revenue, is calculated by dividing the net income by net sales and multiplying by 100. For the given company, with a net income of $150,000 and net sales of $4,050,000, the net margin ratio is 3.704%.
Step-by-step explanation:
To calculate the net margin ratio, you divide the net income by the net sales and then multiply by 100 to get a percentage. In this case, with a net income of $150,000 and net sales of $4,050,000, the computation would be:
Net Margin Ratio = (Net Income / Net Sales) × 100
Net Margin Ratio = ($150,000 / $4,050,000) × 100
Net Margin Ratio = 0.03704 × 100
Net Margin Ratio = 3.704%
The net margin ratio is an indicator of how efficient a company is at converting sales into profits. For the company in question, it indicates that for every dollar earned from sales, it retains approximately 3.704 cents as profit.