Question

Dimeback co. Has total assets of $8,500,000 and a total asset turnover of 1.8 times. If the return on assets is 8.5 percent. Required: what is its profit margin?

Answer 1

Total asset turnover ratio = Net Sales/ Total assets

Total asset turnover ratio = 1.8

Total assets = 8,500,000

1.8 = Net Sales/ 8,500,000

Net Sales = 8,500,000*1.8 = 15,300,000

Return on Assets = Net Income/ Total assets

Return on assets = 8.5% = 0.085

Total assets = 8,500,000

0.085 = Net Income/8,500,000

Net Income = 8,500,000*0.085 = 722,500

Profit margin = Net income/Net sales

Profit margin = 722,500/15,300,000 = 0.0472

Profit margin = 4.72%