Question

Pettijohn Inc.

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.       

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Balance Sheet (Millions of $)	​
Assets	2007
Cash and securities	$1,554.0
Accounts receivable	9,660.0
Inventories	13,440.0
Total current assets	$24,654.0
Net plant and equipment	17,346.0
Total assets	$42,000.0
Liabilities and Equity	​
Accounts payable	$7,980.0
Notes payable	5,880.0
Accruals	4,620.0
Total current liabilities	$18,480.0
Long-term bonds	10,920.0
Total debt	$29,400.0
Common stock	3,360.0
Retained earnings	9,240.0
Total common equity	$12,600.0
Total liabilities and equity	$42,000.0

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Income Statement (Millions of $)	2007
Net sales	$58,800.00
Operating costs except depr’n	$54,978.0
Depreciation	$1,029.0
Earnings before interest and taxes (EBIT)	$2,793.0
Less interest	1,050.0
Earnings before taxes (EBT)	$1,743.0
Taxes	$610.1
Net income	$1,133.0
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Other data:	​
Shares outstanding (millions)	175.00
Common dividends	$509.83
Interest rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$77.69

Refer to Scenario: Pettijohn Inc. What is the firm’s profit margin?

	a.	1.40%
	b.	1.93%
	c.	1.56%
	d.	1.73%

Answer 1

Net profit margin = (Net Income/Sales)*100

- Firm's Net profit margin = ($1133 millions/$58,800 millions)*100

= 1.93%

So, the firm’s profit margin is 1.93%

Option B