Question

Use the following financial statement information as of the end of each year to answer this question. 2017 2016 Inventory $54,000 $48,000 Current assets 81,000 106,000 Total assets 392,000 336,000 Current liabilities 27,000 36,000 Total liabilities 102,000 88,000 Total stockholders’ equity 290,000 248,000 Preferred stock 10,000 10,000 Net sales 784,000 697,000 Cost of goods sold 306,000 277,000 Net income 34,000 90,000 Tax expense 22,000 18,000 Interest expense 12,000 12,000 Dividends paid to preferred stockholders 2,000 2,000 Dividends paid to common shareholders 1,000 1,000 Compute the profit margin for 2017.

Answer 1

Answer:

Gross Margin = 60.97%

Net Profit Margin = 4.337%

Explanation:

Gross Profit Margin =  $\frac{Net\: Sales \: - \: Cost \: of \: Goods \: Sold}{Net Sales}$

Here as per the data provided,

Net Sales for the year 2017 = $784,000

Cost of goods sold for the year 2017 = $306,000

Gross Profit Margin = $\frac{784,000 \: - \:306,000}{784,000} \times 100$ = 60.97%

Net profit margin = $\frac{Net\: Income}{Net Sales}\times 100$ =

$\frac{34,000}{784,000}\times 100$ = 4.337%

Since it is not specified which margin to calculate, when we say profit margin we will calculate gross margin.

Gross Margin = 60.97%

Net Profit Margin = 4.337%