Question

Maggie’s Skunk Removal Corp.’s 2018 income statement listed net sales of $14.5 million, gross profit of $9.90 million, EBIT of $7.6 million, net income available to common stockholders of $5.2 million, and common stock dividends of $3.2 million. The 2018 year-end balance sheet listed total assets of $54.5 million and common stockholders' equity of $23.0 million with 2.0 million shares outstanding. Calculate the following:
(a) Profit margin
(b) Gross profit margin
(c) Operating profit margin
(d) Basic earnings power
(e) Return on assets

Answer 1

Explanation:

The computations are as follows

a. Profit margin

= Net Income available to common stockholders ÷ Net Sales

= $5.2 Million ÷ $14.5 Million

= 35.86%

b. Gross profit margin

= Gross Profit ÷ Net Sales

= $9.90 Million ÷ $14.5 Million

= 68.28%

c. Operating profit margin

= EBIT ÷ Net Sales

= $7.60 Million ÷ $14.5 Million

= 52.41%

d. Basic earning power

= EBIT ÷ Total Assets

= $7.6 Million ÷ $54.5 Million

= 13.94%

e. Return on assets

= Net Income available to common stockholders ÷ Total Assets

= $5.2 Million ÷ $54.5 Million

= 9.54%