CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

An analyst gathers the following data about a company and the industry in which it operates:

Items | Company ($ millions) | Industry Averages as a Percent of Sales
Revenues | 5,000 | 100%
Cost of goods sold | 2,100 | 45%
Operating expenses | 1,750 | 32%
Profit margin | 475 | 9.5%

Which of the following conclusions is most reasonable? Compared to the industry, the company ______
A. has the same cost structure and net profit margin.
B. has a lower gross profit margin and spends more on its operating costs.
C. is better at controlling product costs but less effective at controlling operating costs.
Explanation: The company's gross profit margin is 2900/5000 = 58%, and that of the industry is 1 - 0.45 = 55%. This indicates that the company's cost of goods sold, or product costs, is lower; it is controlling them better.

Its operating cost is 1750/5000 = 35%, while the industry average is 32%. The company's operating costs are higher. It is not as effective at controlling its operating costs as others in the industry.

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