Item
Total
assets $10,000,000
Total equity (all common) 9,000,000
Total debt 1,000,000
Annual interest 100,000
Total sales $25,000,000
EBIT 6,250,000
Earnings available for
common stockholders 3,690,000
I am trying to find the values for the:
(1) Operating profit margin
(2) Net profit margin
(3) Return on total assets
(4) Return on common equity
Problem is I do not know which numbers to put into the equations. Any help?
To find the values for the given financial ratios, you need to use the following formulas:
(1) Operating profit margin = EBIT / Total sales
(2) Net profit margin = Earnings available for common stockholders / Total sales
(3) Return on total assets = EBIT / Total assets
(4) Return on common equity = Earnings available for common stockholders / Total equity
Let's plug in the values given in the question into the formulas:
(1) Operating profit margin = 6,250,000 / 25,000,000
(2) Net profit margin = 3,690,000 / 25,000,000
(3) Return on total assets = 6,250,000 / 10,000,000
(4) Return on common equity = 3,690,000 / 9,000,000
Now, let's calculate the values:
(1) Operating profit margin = 0.25 or 25%
(2) Net profit margin = 0.1476 or 14.76%
(3) Return on total assets = 0.625 or 62.5%
(4) Return on common equity = 0.41 or 41%
So, the values for the financial ratios are as follows:
(1) Operating profit margin = 25%
(2) Net profit margin = 14.76%
(3) Return on total assets = 62.5%
(4) Return on common equity = 41%