Question

In which of the following scenarios would a firm's profit margin on sales increase?

A. The firm's net income decreases while its net sales remain constant.
B. The firm's net income increases while its average total assets decrease.
C. The firm's net income increases while its net sales decrease.
D. The firm's net income decreases while its average total assets remain constant

Answer 1

A firm's profit margin on sales would increase in the scenario where its net income increases while its net sales decrease, as seen in option C.

Step-by-step explanation:

The scenario in which a firm's profit margin on sales would increase is when the firm's net income increases while its net sales remain the same or increase. From the options given, scenario C, where the firm's net income increases while its net sales decrease, would result in an increased profit margin.

The profit margin is calculated by taking the net income divided by net sales. When net income increases and net sales remain constant or decrease, the ratio increases, indicating a higher profit margin.

The firm's profit margin on sales would increase if its net income increases while its net sales decrease. When net income increases and net sales decrease, it means that the firm is able to generate higher profits from fewer sales. This can happen if the firm implements cost-cutting measures or increases the efficiency of its operations.