Question

The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin

Answer 1

The profit margin is 16.92 percent.

Step 1

return on equity = 23.62 percent

capital intensity ratio = 1.06

equity multiplier = 1.48

Step 2

Profit margin = 23.62/[(1 / 1.06) ×1.48]

⇒ 0.1692 × 100

⇒16.92 percent

The profit margin is 16.92 percent.

How are profit margins determined?

The formula for profit margin

• Get your COGS (cost of goods sold) information.
• Find out your income (the price at which you sell these items, for instance $50).
• Subtract the cost from the income to arrive at the gross profit.
• Gross profit divided by revenue: $20 / $50 Equals 0.4 .
• Put it in percentage form: 0.4 x 100= 40%

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