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Chapter 2: 6BP_a (page 24)

Dr. Zhiva虁go Diagnostics Corp.鈥檚 income statement for 20X1 is as follows:

Sales\( 2790000
Cost of goods sold1790000
Gross Profits\)1000000
Selling and administrative expenses302000
Operating profits\(698000
Interest Expense54800
Income before taxes\)643200
Taxes30%192960
Income after-tax$ 450240

Compute the profit margin for 20X1.

Short Answer

Expert verified

Profit margin: 4.5%

Step by step solution

01

Profit margin

The profit margin of the company is calculated as a percentage of income divided by revenue. There are 3 types of profit margin: gross profit margin, operating profit margin, and net profit margin. However, the most important and commonly used is the net profit margin - calculated after deducting all expenses, including taxes and interests.

Net profit margins are most used by creditors, investors, and the businesses themselves to evaluate the financial health of the company.

02

Calculation of Profit margin

Profit margin = Net income after tax/ Sales

= $450240/ $279000= 16.14%

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Most popular questions from this chapter

The Holtzman Corporation has assets of \(400,000, current liabilities of \)50,000, and long-term liabilities of \(100,000. There is \)40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a. Compute book value (net worth) per share.

b. If there is $22,000 in earnings available to common stockholders and

Holtzman鈥檚 stock has a P/E of 18 times earnings per share, what is the current

price of the stock?

c. What is the ratio of market value per share to book value per share?

A-Rod Fishing Supplies had sales of \(2,500,000 and cost of goods sold of \)1,710,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,680,000. What was the firm鈥檚 operating profit?

The Volt Battery Company has forecast its sales in units as follows:

January

1,300

May

1,850

February

1,150

June

2,000

March

1,100

July

1,700

April

1,600

Volt Battery always keeps an ending inventory equal to 110 percent of the next month鈥檚 expected sales. The ending inventory for December (January鈥檚 beginning inventory) is 1,460 units, which is consistent with this policy.

Materials cost \(14 per unit and are paid for in the month after purchase. Labor cost is \)7 per unit and is paid in the month the cost is incurred. Overhead costs are \(8,500 per month. Interest of \)8,500 is scheduled to be paid in March, and employee bonuses of $13,700 will be paid in June.

Prepare a monthly production schedule and a monthly summary of cash payments for January through June. Volt produced 1,100 units in December.

The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:

STERLINE TIRE COMPANY

Income Statement

For the year ended December 31, 20X1

Sales (20,000 tires at \(60 each)

\)1,200,000

Less: variable costs (20,000 tires at \(30)

600,000

Less: fixed cost

400,000

Earnings before interest and taxes (EBIT)

\)200,000

Interest expenses

50,000

Earning before taxes (EBT)

\(150,000

Income tax expenses (30%)

45,000

Earning after taxe (EAT)

\)105,000

Given this income statement, compute the following:

d. Break even point in units.

Using the financial statements for the Snider Corporation, calculate the 13 basic ratios found in the chapter.

SNIDER CORPORATION

Balance sheet

December 31, 20X1

Assets

Current assets:

Cash

\(52,200

Marketable securities

24,400

Accounts receivable (net)

222,000

Inventory

238,000

Total current assets

\)536,600

Investments

65,900

Plant and equipment

\(615,000

Less: accumulated depreciation

(271,000)

Net plant and equipment

\)344,000

Total assets

\(946,500

Liabilities and stockholder鈥檚 equity

Current liabilities:

Account payables

\)93,400

Notes payable

70,600

Accrued taxes

17,000

Total current liabilities

\(181,000

Long term liabilities:

Bonds payable

\)153,200

Total liabilities

\(334,200

Stockholder鈥檚 equity

Preferred stock, \)50 per value

\(100,000

Common stock, \)1 par value

80,000

Capital paid in excess of par

190,000

Retained earnings

242,300

Total stockholder鈥檚 equity

\(612,300

Total liabilities and stockholder鈥檚 equity

\)946,500

SNIDER CORPORATION

Income statement

For the year ending December 31, 20X1

Sales (on credit)

\(2,064,000

Less: cost of goods sold

1,313,000

Gross profit

\)751,000

Less: selling and administrative expenses

496,000*

Operating profit (EBIT)

\(255,000

Less: interest expenses

26,900

Earning before tax (EBT)

\)228,100

Less: taxes

83,300

Earning after taxes (EAT)

\(144,800

*includes \)36,100 in lease payments
See all solutions

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