Auditing - Essay Example

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Auditing

A high net profit margin indicates that a company converts its sales into profits fast. The net profit margin also considers costs associated with the sale of products. There are several factors which triggered a decrease in the net profit margins. They include: a. Inventories Even though, a company treats inventories as an asset in the balance sheet, the cost of sales are not reported until a sale is actually made. Therefore, it is possible to calculate the cost of sales in inventories. However, market fluctuations can reduce the value of inventories which in turn lead to devaluation of net profit margins. An economic slowdown leads to slow moving inventories and decreases company sales and causes a negative impact on net profit margins. b. Price changes Changes in price affect the number of units sold which in turn influences the profits. It is challenging to price items correctly especially in a perfect market. Therefore, the price point of a product is a primary factor responsible for decreasing net profit margin. A decrease in price may in turn cause a decrease in net profit margins. c. ...Show more

Summary

Name…………………………………………………………………………….xxxxxx Institution……………………………………………………………………….xxxxxx Course……………………………………………………………………………xxxxx Professor………………………………………………………………………….xxxxx @2013 Q1- Possible explanations for changes in net profit margin and gross profit margin Financial ratios are used in analyzing the performance of an entity and its trend over time…
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