Question

Two entrepreneurs borrowed $50,000 at 10% interest from members of families and each put up $30,000 in equity capital. Retail space was rented and $60,000 was spent for fixtures and store equipment. For their venture after one complete. year of operation, they asked you to do a financial ratio analysis. Here are the data you collected until today. Calculate the net profit margin.

Sales: $320,000. Operating Costs: 285,000. Depreciation: 10,000. Interest: 5,000 Taxes: 6,000. Cash: $20,000. Receivables: 30,000. Inventories: 50,000. Net Fixed Assets: 50,000. Payables: 22,000. Accruals: 18,000. Long-Term Loan: 50,000. Common Equity; 60,000

Answer 1

Calculating the Net Profit :-

Particular	Amount in $
Sales	320,000.00
Less: Operating Costs	(285,000.00)
Less: Depreciation	(10,000.00)
EBIT	25,000.00
Less: Interest Expense	(5,000.00)
Taxable Income	20,000.00
Less: Taxation	(6,000.00)
Net income	14,000.00

Net Profit Margin = (Net Profit/Sales)*100

Net Profit Margin = ($14,000/$320,000)*100

Net Profit Margin = 4.375%

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