Question

Suppose the profit margin industry average is 10%. If Jones Company has a profit margin of 50%, which of the following is true? *

O In terms of profit margin, the Jones Company is performing worse than the industry average because it was able to convert 50% of its revenues to profits while the industry average typically converts only 10% of its revenues to profits.
O In terms of profit margin, the Jones Company is performing better than the industry average because it was able to convert 50% of its revenues to profits while the industry average typically converts only 10% of its revenues to profits.
O In terms of profit margin, neither the Jones Company nor the industry average reflects the ability to generate a profit.
O It is not possible to know how Jones Company compares to the industry average based upon the information provided.

Answer 1

The Jones Company, with a 50% profit margin, is performing better than the industry average of 10% because it indicates that a higher percentage of its revenue is being converted into profit.

Step-by-step explanation:

If the profit margin industry average is 10% and Jones Company has a profit margin of 50%, this implies that in terms of profit margin, the Jones Company is performing better than the industry average. This is because the Jones Company was able to convert a higher percentage of its revenues to profits compared to the industry average. The average profit for a company is calculated as the price minus the average cost. Therefore, a higher profit margin indicates that the company is generating more profit for each unit of revenue.

Based on this information, we can conclude that the Jones Company is performing remarkably well, as its profit margin is significantly higher than the industry average. Profit margins are a direct indicator of a company's ability to manage its costs and successfully earn profits over and above these costs. Since the Jones Company has a 50% profit margin, it means that half of its revenues are retained as profit after accounting for average costs, which is a strong indication of financial success in comparison to the industry standard.