Question

In this question you need to complete the below calculations and find out
the most and least profitable company out of 5 mentioned below. Bring an example
and calculate the EBIDTA for the most profitable company:
a. How much is the margin (in number and %) if the sale price = $120 and cost = $35
b. How much is the mark up (in number and %) if the sale price = $92 and cost = $18
c. How much is the margin (in number and %) if the sale price = $220 and mark up 80%
d. How much shall the product be sold if the cost = $23 and margin = 70%
e. If you know that the cost = $65 and markup = $40, please find margin in %

Answer 1

To compare the profitability of the 5 companies we will calculate the profit margin, markup and profit amount for all the companies.

Profit = Sales Price - Cost

Profit Margin = Profit / Sales Price

Profit Markup = Profit / Cost

a. Sale Price = 120 and Cost = 35. Thus,

Profit = 120-35 = 85

Profit Margin = 85/120 = 70.83%

Profit Markup = 85/35 = 242.86%

b. Sale Price = 92 and Cost = 18. Thus,

Profit = 92-18 = 74

Profit Margin = 74/92 = 80.43%

Profit Markup = 74/18 = 411.11%

c. sale Price = 220 and Markup = 80%. Let the cost be x.

Markup = Profit / Cost

80% = Profit / x

Profit = 0.8x

Profit = Sale Price - Cost

0.8x = 220 - x

1.8x = 220

x = Cost = 122.22

Profit = 80% * 122.22 = 97.78

Margin = 97.78/220 = 44.44%

d. Cost = 23 and MArgin = 70%. Let the sale price be x.

Margin = Profit / Sale price

70% = profit / x

Profit = 0.7x

Profit = sale price - cost

0.7x = x - 23

23 = 0.3x

x = Sales price = 76.67

Profit = 0.7x = 0.7*76.67 = 53.67

Markup = 53.67 / 23 = 233.33%

e. Cost = 65 and Markup = 40. Thus, markup = profit = 40.

Profit = Sale price - cost

40 = sale price - 65

sale price = 65+40 = 105

margin = profit / sale price = 40 / 105 = 38.10%

Markup = profit / cost = 40 / 65 = 61.54%

Now we have the following :-

We compare the profit in percentage terms to evaluate the profitability of the company. Thus, the company with the highest profit margin and markup is the most profitable company i.e, Company b.

EBIDTA = Earnings Before Interest, Depreciation, Tax and amortisation. As we have only sale price and cost so the profit will be equal to EBIDTA.

The EBIDTA of the company b will be its profit which is 74 per unit.