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Homework answers / question archive / 1) Intro A company has sales of $39,000 and total costs of $29,000, including depreciation and interest expenses
A company has sales of $39,000 and total costs of $29,000, including depreciation and interest expenses. The average tax rate is 50%.
Total assets are $74,000 and total equity is $40,000.
QUESTION
- What is the profit margin?
Use the following information to answer the questions:
| Assets | Liabilities and Equity | |||
| Cash | 13,000 | Accounts payable | 21,000 | |
| Marketable securities | 4,000 | Notes payable | 8,000 | |
| Accounts receivable | 9,000 | Current liabilities | 29,000 | |
| Inventory | 26,000 | Long-term debt | 80,000 | |
| Current assets | 52,000 | Total liabilities | 109,000 | |
| Machines | 42,000 | Paid-in capital | 30,000 | |
| Real estate | 60,000 | Retained earnings | 15,000 | |
| Net fixed assets | 102,000 | Equity | 45,000 | |
| Total assets | 154,000 | Total liab. & equity | 154,000 | |
| Income statement | |
| Sales | 430,000 |
| Operating expenses | 387,000 |
| Depreciation | 25,000 |
| EBIT | 18,000 |
| Interest | 5,000 |
| Taxable income | 13,000 |
| Taxes | 4,290 |
| Net income | 8,710 |
There are 9,000 shares outstanding, each currently trading for $8.22.
QUESTION
- What is the enterprise value-EBITDA ratio?
- What is the profit margin?
- What is ROE?
Question 1:
Profit margin = (net profit/total sales) * 100%
Net profit = (39,000 – 29,000) – 50%*(39,000 – 29,000)
= 5,000
Therefore, profit margin = (5000/39,000) *100%
=12.82%
Question 2:
Enterprise value-EBITDA ratio=Enterprise value/EBITDA
Enterprise value= 9000*8.22 = 73,980
EBITDA=18,000+25,000 = 43,000
Enterprise value-EBITDA ratio= 73,980/43,000
=1.72
Profit margin = (net income/total sales) * 100%
= (8,710/430,000) *100%
=2.03%
ROE =Net income/Total equity
=8,710/45,000
= 0.1936 or 19.36%
