Question

In 2014 Electric Autos had sales of $135 million and assets at the start of the year of $220 million. If its return on start-of-year assets was 10%, what was its operating profit margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Answer:

Return on assets(ROA)   = Operating profit /Assets x 100

            10                        = Operating profit /$220m x 100

            10 x $220m        = 100 x operating profit

             $2,200m           = 100 x operating profit

Operating profit              = $2.200m/100

Operating profit              = $22m

Operating profit margin = Operating profit/Sales x 100

                                        = $22/$135 x 100

                                        = 16.30%

Explanation:

In this question, we need to calculate the operating profit using return on asset formula as shown above. Operating profit becomes the subject of the formula. Then, we will calculate operating profit margin by dividing the operating profit by sales multiplied by 100.