- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 6. Income Statement Ratios and Common-Size Analysis
CFA Practice Question
Assume that for several years, the net income of Delta-Baines (DB) has been rising as a percentage of the company's net sales. Analysts normally would interpret this to mean that ______
B. DB has been successful in efforts to control expenses.
C. DB's net sales are increasing faster than the rate of inflation and the portion of DB's total assets financed by creditors is decreasing.
A. DB's sales volume has been declining.
B. DB has been successful in efforts to control expenses.
C. DB's net sales are increasing faster than the rate of inflation and the portion of DB's total assets financed by creditors is decreasing.
Correct Answer: B
User Contributed Comments 9
| User | Comment |
|---|---|
| spartan | I don't get it. What does it mean when it says Ni rising as a percentage of company's net sale.? Can someone explain this please |
| mackhulk | It's basically saying that the net profit margin (net income/net sales) is increasing. |
| bokica | It is B, since the rise was simult. between the two (net income has been rising as a % of net sales), leaving the only reasonable comment that expenses were not drasticlly changing. |
| o123 | **its just phrasing the question from the standpoint of a common size statement (everything is a percentage of something) to make comparison easier...so dont let it make it confusing. Its just like saying a company's net income is increasing. |
| omer123 | Net Income = Net Sales - COGS - Expenses. If net income is increasing at a faster rate than Net Sales that means COGS and Expenses have been successfully controlled. Simple Logic. |
| thekapila | its just an operating profitability ratio..which is making efforts into profit..so its B |
| Mavizo | Thanks omer123!! Very good explanation!! |
| farhan92 | what a name Delta Baines! |
| mcoffin | Can someone explain C? |