Question

2) Compute the EBIT margin and its components – the gross profit margin and selling, general, and administrative expenses to revenue in 2018 and 2019. What caused the change in EBIT margin? [You do not have to use the average method – i.e. you can use year-end numbers in computing the ratios.]

ATC Company
Balance Sheet on December31 ($ millions)
	2018	2019
Inventory	20	28
Accounts Receivable	36	26
Other	29	36
Cash	410	473
Total Current Assets	495	562
NPPE	1,847	2,237
Other Fixed Assets	156	212
Total Fixed Assets	2,003	2,449
Total Assets	2,499	3,011
Short Term Debt and Notes	152	173
Accounts Payable	27	28
Other	334	412
Total Current Liabilities	514	613
Long Term Debt	1,119	1,249
Other Long Term Liabilities	175	266
Total Long Term Liabilities	1,294	1,515
Common Equity	690	884
Total Liabilities & Equity	2,499	3,011

Income Statement for Year Ending December 31 ($ millions)
	2018	2019
Total revenues	1,667	1,841
Cost of sales	1,250	1,297
Gross profit	417	544
Selling, general & admin expenses	174	180
Operating profit	243	364
Net interest expense	45	64
Other income (expense)	0	2
Income before tax	199	301
Taxes	38	69
Net Income	162	232

Answer 1