Concept explainers
1.
Concept Introduction:
Profit Margin Ratio:
Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. The formulas to calculate the Profit margin is as follows:
Return on assets/ investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the
To Calculate: the profit margin and return on total assets of the company for both the companies.
2.
Concept Introduction:
Profit Margin Ratio:
Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. The formulas to calculate the Profit margin is as follows:
Return on assets/ investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:
To identify: the company preferable for the investment.
Want to see the full answer?
Check out a sample textbook solutionChapter 13 Solutions
Loose Leaf for Financial Accounting: Information for Decisions
- Problem 1: Compute for the profitability ratios of both Ellane and meLanie. Which of the two companies do you believe is more profitable? Problem 2: Compute for operational efficiency ratios of both Ellane and meLanie. Which of the two companies is more efficient? Problem 3: Compute for the financial health ratios of both ellane and meLanie. Which of the two companies is more financially healthy?arrow_forwarda) Based on the information provided, calculate the operating income in good format. Show all calculations. b) Calculate the individual and net Growth Component. c) Calculate the individual and net Price Recovery. d) Calculate the Productivity Component e) Show the reconciliation of the Operating Incomearrow_forward1. Compute for the profitability ratios of both Elen and Melanie. Which of the two companies do you believe is more profitable?arrow_forward
- Pick two companies in the same industry.a. Determine their DOL, DFL, and DCL.b. What effect does a change in sales have on their operating income?c. What effect does a change in sales have on earnings per share?arrow_forward4. Calculate the profitability index for each product. 5. Calculate the simple rate of return for each product. 6a. For each measure, identify whether Product A or Product B is preferred. 6b. Based on the simple rate of return, which of the two products should Lou’s division acceptarrow_forwardHEB grocery How can the contribution margin be used to determine the profitability of HEB grocery company products and how could it be used to make the operations more profitable?arrow_forward
- Profitability earning is a real barometer to measure the Select one: O a. Sales of business firm O b. Effectiveness of business firm O c. None of the options O d. Cost of business firm O e. Efficiency of business firmarrow_forwardBy using the comparative income approach, calculate the dropping of GlassGlobe segment. Justify whether Excess Earth Company should retain or drop the segment.arrow_forwardAPPLY THE CONCEPTS: Target income (sales revenue) Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which the total set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows: Price and Cost Information Amount Selling Price per Unit $30 Variable Cost per Unit $15 Total Fixed Cost $15,000 For the upcoming period, the company wishes to generate operating income of $40,000. Given the cost and pricing structure for the company’s product, how much sales revenue must it generate to attain its target income? Step 1: Calculate the contribution margin ratio: The contribution margin ratio is the contribution margin in proportion to the selling price on a…arrow_forward
- Solve: 1. Calculate the profitability index for each product. 2. Calculate the simple rate of return for each product. 3. Which of the two products should Lou's division pursue.arrow_forwardWhich of the following option shows the rate at which company is earning profit? Select one: a. All options are correct b. Margin of safety c. Contribution margin d. Profit volume ratioarrow_forwardAnalyze the company’s profitability and its ability to generate sufficient operating profit by using the following ratios a. Gross Profit Marginb. Operating Profit Marginc. Operating income return on investments (ROI)d. Net Profit Marginarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT