Problem 37 Profitability Ratios LG34 Maggies Skunk Removal C

Problem 3-7 Profitability Ratios (LG3-4) Maggie\'s Skunk Removal Corp.\'s 2015 income statement listed net sales of $13.6 million, gross profit of $8.40 million, EBIT of $6.7 million, net income available to common stockholders of $4.3 million, and common stock dividends of $2.3 million. The 2015 year-end balance sheet listed total assets of $53.6 million and common stockholders\' equity of $22.1 million with 2.0 million shares outstanding. Caloulate the profit margin. (Round your answer to 2 decimal places.) in Calculate the profit margin. (Round your answer to 2 decimal places.) ross margin Calculate the profit margin. (Round your answer to 2 decimal places.) Calculate the basic earnings power. (Round your answer to 2decimal places.) ma

Solution

Profit margin = Net income available to stockholders / Sales = $4.3 million / $13.6 million = 0.3162 or 31.62%

Gross profit margin = Gross profit / Sales = $8.40 million / $13.6 million = 0.6176 or 61.76%

Operating profit margin = EBIT / Sales = $6.7 million / $13.6 million = 0.4926 or 49.26%

Basic Earnings Power = EBIT / Total assets = $6.7 million / $53.6 million = 0.125 or 12.50%

Return on assets = Net income available to stockholders / Total assets = $4.3 million / $53.6 million = 0.0802 or 8.02%

Return on equity = Net income available to stockholders / common stockholders\' equity = $4.3 million / $22.1 million = 0.1946 or 19.46%