Question #5 :

Year 1:
* Gross Profit Margin: Year 1 has a gross profit margin of 60%, which is a healthy sign.
This indicates that the company efficiently converts its sales into profit before accounting for
operating expenses.
* Net Profit Margin: The net profit margin is 17%, suggesting that the company retains
17 cents in profit for every dollar of sales after all expenses. This is a decent profit margin.
* Operating Expense Ratio: The total expenses as a percentage of sales are 43%. This
ratio reflects the company's ability to manage its operational costs. A lower percentage would be
more favorable.
* Return on Equity (ROE): To calculate ROE, you would need information about
shareholders' equity. ROE measures how effectively the company is using shareholders' equity to
generate profit.
Year 2:
* Gross Profit Margin: The gross profit margin remains at 60%, indicating consistency
in the efficiency of the company's core operations.
* Net Profit Margin: The net profit margin decreases to 8%, which is a significant drop
compared to Year 1. This might be a cause for concern as it suggests a decline in profitability.
* Operating Expense Ratio: Total expenses have increased to 52% of sales, indicating a
less favorable expense management compared to Year 1.
* ROE: To assess ROE, you would need more information about shareholders' equity,
but the significant drop in net profit suggests that ROE might have declined.
Year 3:
* Gross Profit Margin: The gross profit margin increases to 70%, indicating improved
efficiency in generating profits from sales.
* Net Profit Margin: The net profit margin increases to 18%, which is a positive sign.
The company is retaining a higher percentage of profit compared to Year 2.
* Operating Expense Ratio: The total expenses as a percentage of sales remain at 52%,
similar to Year 2. This suggests that there might be room for further expense management
improvements.