Question

Waldale Pools has a TE of $289,100 and net income of $64,500. The D-eq ratio is 0.55 and the TAT is 1.6. What is the profit margin?

Answer 1

The profit margin can be calculated using the formula: Profit Margin = Net Income / Total Sales. Given the net income of $64,500, we need to find the total sales. The total sales can be calculated using the formula: Total Sales = Total Assets × TAT.

Step-by-step explanation:

The profit margin can be calculated using the formula:

Profit Margin = Net Income / Total Sales

Given the net income of $64,500, we need to find the total sales. The total sales can be calculated using the formula:

Total Sales = Total Assets × TAT

Given the D-eq ratio of 0.55 and TAT of 1.6, we can find the total assets using the formula:

Total Assets = Total Equities / D-eq ratio

Substituting the given values, we get:

Total Assets = $289,100 / 0.55 = $525,636.36

Substituting the values of net income ($64,500) and total assets ($525,636.36) into the profit margin formula, we get:

Profit Margin = $64,500 / $525,636.36 ≈ 0.123 or 12.3%