The company reported a 6% operating margin on sales, a 12% pretax operating return on total assets, and $500 million of average total assets. I have calculated the operating income to $60,000,000. How do I calculate the total sales and total asset turn over?
To calculate the total sales and total asset turnover, you will need the operating margin, pretax operating return on total assets, and average total assets.
1. Calculate Total Sales:
The operating margin is given as 6%. The formula to calculate the operating margin is:
Operating Margin = (Operating Income / Total Sales) * 100
From the given information, we have the operating income as $60,000,000. Rearranging the formula, we get:
Total Sales = (Operating Income / Operating Margin) * 100
Total Sales = ($60,000,000 / 6%) * 100
Total Sales = $1,000,000,000
Therefore, the total sales amount to $1,000,000,000.
2. Calculate Total Asset Turnover:
The pretax operating return on total assets is provided as 12%. The formula to calculate the total asset turnover is:
Total Asset Turnover = Pretax Operating Return on Total Assets / Operating Margin
From the given information, the pretax operating return on total assets is 12% and the operating margin is 6%. Substituting these values into the formula, we get:
Total Asset Turnover = 12% / 6%
Total Asset Turnover = 2
Therefore, the total asset turnover is 2.
In summary, the total sales amount to $1,000,000,000, and the total asset turnover is 2.