T F An equity investor is more focused on the Gross Profit

(T / F) An equity investor is more focused on the Gross Profit Margin Ratio than the Return on Sales ratio (aka Net Profit Margin Ratio).

Solution

False

Explanation:

Return on equity measures how efficiently a firm can use the money from shareholders to generate profits and grow the company. Unlike other return on investment ratios, ROE is a profitability ratio from the investor’s point of view—not the company. In other words, this ratio calculates how much money is made based on the investors’ investment in the company, not the company’s investment in assets or something else.That being said, investors want to see a high return on equity ratio because this indicates that the company is using its investors’ funds effectively.

Gross Profit Margin Ratio focuses only on Sales and maufacturing costs where Net Profit Margin ratio focuses on Operating expenses also.