1. What is the difference between the profit margin and the gross profit rate?

• A. None, these are interchangeable terms.
• B. A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that cost of the goods was 7% of the selling price.
• C. The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income.
• D. A profit margin of 32% means that 32 cents of each net sales dollar is net income and a gross profit rate of 32% means that gross profit is 32% of the selling price.

2. An investor wishes to assess a company's financial position at the end of the period. Which financial statement would the investor probably examine?

• A. the cash flow statement
• B. the income statement
• C. the statement of retained earnings
• D. the balance sheet