How do I calculate profit margin with the following data?
Total equity - 639,400
Net incoome - 51,700
Debt equity ratio - .55
Total asset turnover - 2
Thanks!
To calculate the profit margin, you need to divide the net income by the total revenue. However, since you have not provided the total revenue in the given data, we need to use the given information to derive it.
To find the total revenue, we can use the Total Asset Turnover formula:
Total Asset Turnover = Total Revenue / Average Total Assets
Rearranging this formula, we can find the Total Revenue:
Total Revenue = Total Asset Turnover * Average Total Assets
Now, let's calculate the Average Total Assets. The formula for Average Total Assets is:
Average Total Assets = (Total Equity + Total Debt) / 2
In this case, the Total Equity is given as 639,400. To find the Total Debt, we can use the Debt Equity Ratio formula:
Debt Equity Ratio = Total Debt / Total Equity
Rearranging this formula, we can find the Total Debt:
Total Debt = Debt Equity Ratio * Total Equity
Given that the Debt Equity Ratio is 0.55 and Total Equity is 639,400, we can calculate:
Total Debt = 0.55 * 639,400
Now, we can calculate the Average Total Assets:
Average Total Assets = (639,400 + Total Debt) / 2
Next, we can substitute the values of Total Asset Turnover and Average Total Assets to find the Total Revenue:
Total Revenue = Total Asset Turnover * Average Total Assets
Finally, we can calculate the profit margin by dividing the Net Income by the Total Revenue:
Profit Margin = Net Income / Total Revenue
By following these steps, you should be able to calculate the profit margin given the provided information.