Question

Last year, Dollar General had $7,000 in sales, and cost of goods sold was $4,000. Depreciation expenses totaled $1000 and interest expense was $1400. If the tax rate is 25%, what is the net profit margin for Dollar General? What is its NOPAT margin?

Answer 1

Solution :

Calculation of Net Profit Margin:

The formula for calculating the Net Profit margin =

= (Net Profit / Revenue )

As per the information given in the question we have

Sales = $ 7,000 = Revenue     Cost of goods sold = $4,000   ; Depreciation expenses = $1000   ;

Interest expense = $1400    ;   Tax rate = 25%

We know that Net Profit = [ Sales – Cost of goods sold – Depreciation – Interest Expense ]*( 1 – tax rate )

Applying the available information in the formula above we have

= [ 7000 – 4000 – 1000 – 14000 ] * ( 1 – 0.25 )

= 600 * 0.75 = $ 450

Thus Net Profit = $ 450

Thus the net profit margin = $ 450 / $ 7000 = 0.0643

= 6.43 %

Thus the Net profit margin of Dollar General = 6.43 %

Calculation of NOPAT Margin:

The formula for calculating NOPAT margin = ( NOPAT / Revenue )

We know that NOPAT = Profit from operations * ( 1 – tax rate )

Profit from operations = Sales – Cost of goods sold

As per the information given in the question we have :

Sales = $ 7,000 = Revenue ; Cost of goods sold = $4,000   ; Tax rate = 25%

Thus applying the available information in the formula we have

= [ 7000 – 4000 ] * ( 1 - 0.25 )

= 3000 * 0.75 = $ 2250

Thus NOPAT = $ 2250

NOPAT Margin = $ 2250 / $ 7000 = 0.3214

= 32.14 %

Thus the NOPAT Margin of Dollar general= 32.14 %