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    Question

    Arrange the following ratios in the order in which they appear on a common-size income statement, from top to bottom:

    (A) Gross profit margin

    (B) Earnings per share

    (C) Net profit margin

    (D) Operating profit margin

    A (A), (C), (B), (D) Correct Answer Incorrect Answer
    B (A), (D), (C), (B) Correct Answer Incorrect Answer
    C (C), (B), (A), (D) Correct Answer Incorrect Answer
    D (D), (C), (B), (A) Correct Answer Incorrect Answer
    E (A), (B), (D), (C) Correct Answer Incorrect Answer

    Solution

    (A) Gross profit margin (B) Operating profit margin (C) Net profit margin (D) Earnings per share On a common-size income statement, the gross profit margin is usually presented at the top, followed by the operating profit margin, net profit margin, and finally, earnings per share. This order represents the decreasing level of profitability and earnings as you move down the income statement.

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