The correct answer is: B. Increase in Expense
The gross profit ratio is a measure of profitability that indicates how much profit a company makes for each dollar of revenue. It is calculated by dividing gross profit by revenue. The net profit ratio is a measure of profitability that indicates how much profit a company makes for each dollar of sales. It is calculated by dividing net income by sales.
If the gross profit ratio remains the same but the net profit ratio is decreasing, it means that the company’s expenses are increasing. This could be due to a number of factors, such as an increase in the cost of goods sold, an increase in operating expenses, or an increase in interest expense.
An increase in the cost of goods sold means that the company is paying more for the products or services that it sells. This could be due to an increase in the cost of raw materials, an increase in labor costs, or an increase in overhead costs.
An increase in operating expenses means that the company is spending more money on things like rent, utilities, and marketing. This could be due to an expansion of the company’s operations or an increase in the cost of doing business.
An increase in interest expense means that the company is paying more interest on its debt. This could be due to an increase in the amount of debt that the company has taken on or an increase in interest rates.
Any of these factors could lead to a decrease in the net profit ratio. It is important for companies to monitor their expenses closely and take steps to control them if they want to maintain a healthy profit margin.