The table below shows two profitability ratios calculated for A B C Ltd and XYZ Itd for the period ended 31 Dec 2022: multicolumn(1)(|c|)( Ratio ) & A B C Ltd & X Y Z Ltd Gross profit margin & 40 % & 15 % Operating profit margin & 10 % & 10 % Which of the following statements is an incorrect interpretation of the two ratios: The two companies generated the same amounts of operating profits in 2022. ABC Ltd has a higher gross profit margin compared to XYZ Ltd. The ratios suggest that A B C Ltd could be better at managing their cost of sales, compared to XYZ Itd.

## Step 1: We look at the information given in the table : Gross profit margin and Operating profit margin for both companies ABC Ltd and XYZ Ltd. ## Step 2: Gross profit margin is the percentage of sales that exceed the cost of goods sold. It signifies how well a company is able to manage its costs of goods sold(A higher ratio shows better management). While the operating profit margin measures the percentage of a company's revenue left after paying variable costs of production. ## Step 3: Considering the fact that both companies have the same operating profit margin but have different gross profit margin, we can interpret following things: ###- has a higher gross profit margin ( ) than ( ), implying the is better at managing their cost of goods sold. ###- and both have the same operating profit margin ( ), indicating that both have the same ratio of operating profit to sales revenue.###-We infer from the lower gross profit margin that may have features of a price competitive company, meaning the company prioritizes high volume of sales over high profit margin on individual units sold.## Step 4: Now we match our inferences against given statements to find out the wrong statement.