Given: Sales/Revenue = $10.6 million
Cost of goods sold = $5.6 million
General and administrative expenses = $550,000
Research and development expenses = $1.1 million
Annual depreciation = $1.3 million
Tax rate = 35%
Find: gross margin, operating margin and net profit margin
Solutions:
a) The Gross Margin is 47.2%
Gross Margin = (Revenue - Cost of Goods Sold)/Revenue
$10.6 million –$ 5.6 million = $5,000,000
$5,000,000/$10,600,000 = 0.4716 or 47.2%
b) The Operating Profit Margin is 72.2%
Operating
Profit Margin = Operating Income / Sales Revenue
*Get first the total amount of operating income
Operating income = Gross Profit – General and
Administrative Expenses – Research and Development – Depreciation
Operating
income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000
Operating
income = $7,650,000
*Then get the
operating margin
Operating
margin = $7,650,000 / $10,600,000
Operating
margin = 0.7216 or 72.2%
c) The net profit margin is
46.9%
Net Profit Margin = Net Income/ Total Revenues
*Get first the total amount of Net Income
Net Income = Total Revenues – Total Expenses
Net Income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000
x (1-0.35) <span>
Net Income = $7,650,000 x (1-0.35)</span>
Net Income = $4,972,500
*Then get the Net Profit Margin
Net Profit Margin = $4,972,500/$10,600,000
<span>Net Profit Margin = 0.4691 or 46.9%</span>
