Question

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

a. The gross profit amount is more informative than the gross profit rate because it is a dollar amount rather than a ratio.

b. The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.

c. The gross profit amount is more informative than the gross profit rate because the gross profit rate is only used to describe a few industries while the gross profit amount is universally used.

d. The gross profit amount is more informative than the gross profit rate because high volume operations are able to calculate the gross profit rate but not the gross profit amount.

Answer 1

The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.

Step-by-step explanation:

The best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount is option b. The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.

The gross profit rate is calculated by dividing the gross profit amount by the net sales. It represents the percentage of each dollar of sales that is left after deducting the cost of goods sold. This ratio provides useful information about the efficiency of a company's operations and its ability to generate profits.