Final answer:
An investor or lender can use the Gross Profit Margin Ratio to assess the financial health of a company and make financial contribution decisions. A higher ratio indicates better financial health (option a), while a lower ratio indicates poorer financial health .
Step-by-step explanation:
An investor or lender can use the Gross Profit Margin Ratio to make financial contribution decisions by analyzing the profitability of a company. The Gross Profit Margin Ratio is calculated by dividing the gross profit of a company by its revenue and multiplying it by 100 to get a percentage.
A higher ratio indicates better financial health as it means that the company is generating more profit compared to its revenue. In this case, an investor or lender may be more inclined to provide financial support because the company has a track record of high profitability and is more likely to be able to repay the loan.
On the other hand, a lower ratio may indicate poorer financial health as it suggests that the company's profit margins are low relative to its revenue. This may raise concerns for the investor or lender as it indicates a higher risk of loan default. Therefore, they may be more cautious in providing financial support or may negotiate terms that mitigate the risk.