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Chapter 2: 24BP_c (page 83)

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.

c. Profit margin.

Times mirror and glass company

Sales

\)126,000

Less: Cost of goods sold

93,000

Gross profit

\(33,000

Less: selling and administrative expenses

11,000

Lease Expenses

4,000

Operating profit*

\)18,000

Less: Interest expenses

3,000

Earning before taxes

\(15,000

Less: Taxes (30%)

4,500

Earning after taxes

\)10,500

*equal income before interest and taxes

Short Answer

Expert verified

Profit margin of the company is 8.33%.

Step by step solution

01

Retrun on assets 

Returnonassets=NetincomeTotalassets=$10,500$80,000=13.125%

02

Calculation of Assets turnover ratio

Totalassetturnoverratio=NetsalesAveragetotalassets=$126,000$80,000=1.575

03

Calculation of Profit margin as per DuPont equation

Profitmargin=ReturnonassetsAssetsturnoverratio=13.125%1.575=8.33%

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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.

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