Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operating margin between these two years imply about the company?
Income Statement for Xenon Manufacturing:
2008 2009
Total sales 202 212
Cost of sales -148 -172
Gross Profit 54 40
Selling, general,
and administrative expenses -22 -20
Research and development -8 -7
Depreciation and amortization -4 -3
Other income 4 6
Earnings before interest
and taxes (EBIT) 24 16
Interest income (expense) -7 -4
Pretax income 14 12
Taxes -4 -3
Net Income 10 9
A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009.
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009.
C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009.
D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.
Answer: C
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