Your Questions About Profit Margin Ratio
Carol asks…
In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales?
In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to:
A) Covering the fixed costs of the business and providing operating income.
B) Fixed expenses and variable expenses.
C) Variable expenses and interest charges.
D) Variable expenses when production is at normal capacity.
mikey answers:
B
Paul asks…
Accounting Question on Return on Assets, Asset Turnover, and Profit Margin Ratio?
I can’t seem to figure this problem out:
Hopson Company reports the following information (in millions) during a recent year: net sales, $11,408.5; net earnings, $244.9; total assets, ending, $4,312.6; and total assets, beginning, $4,254.3.
Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin ratios.
I know the formula for (1) is net income/total assets (2) sales/fixed assets and (3) net income/sales
and i calculated it and keep getting the wrong answer.
mikey answers:
For (3), there should be no question about what the answer is. But for (1) and (2), some questions will want you to use the ending balance of $4,312.6, while others will want you to use the average balance of $4,283.45 [(4,312.6 + 4,254.3) / 2]
Ken asks…
Use the following to compute profit margin for each separate company a through e:?
Net Income Net Sales Net Income Net Sales
a. 5,390 44,830 d.55,234 1,458,999
b 87,644 398,954 e.70,158 435,925
c 93,385 257,082
Which of the five companies is the most profitable according to the profit according to the profit margin ratio? Interpret that company’s profit margin ratio.
mikey answers:
The answer is c. That company has net income of $93,385 on net sales of only $257,082, which is a profit margin ratio of over 36%. You just divide net income by net sales to get your ratio.
That company obviously has low cost of sales and low expenses relative to the other companies listed.
Steven asks…
how do i find profit margin ratio?
mikey answers:
Profit Margin Ratio = Net Income / Revenue
Jenny asks…
finding debt-equity ratio when profit margin, TATO, and ROE are given.?
profit margin of 8 percent, total asset turnover of 1.54, and ROE of 15.28 percent. The firm’s debt−equity ratio is __________ times?
mikey answers:
The net profit margin is equal to the net profit (aka net income) after taxes and excluding extraordinary items divided by total revenues.
Return on Assets = Net Profit Margin x Asset Turnover
ROA = 0.08 x 1.54 = 12.32%
ROE = ROA x Debt-Equity Management Ratio
So, D/E = ROE / ROA
debt to equity = 15.28 / 12.32 = 1.24
check my math
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