Question

Analyzing Profitability) In​ 2016, the Allen Corporation had sales of $ 60​ million, total assets of $ 49 ​million, and total liabilities of $ 23 million. The interest rate on the​ company's debt is 5.9 percent, and its tax rate is 35 percent. The operating profit margin is 12 percent.

a. Compute the​ firm's 2016 net operating income and net income.

b. Calculate the​ firm's operating return on assets and return on equity.​ (Hint: You can assume that interest must be paid on all of the​ firm's liabilities.)

Answer 1

Req a:
Sales revenue				60000000
Multiply: Operating profit margin				12%
Operating Income				7200000
Net Income:
Operating income				7200000
Less: Interest (23000000*5.90%)				1357000
Before tax Income				5843000
Less: tax @ 35%				2045050
After tx Inccome				3797950
Req b:
Operating income				7200000
Divide: Total assets				49000000
Operating return on Total assets				14.69%
Net income				3797950
Divide: Total Equity				26000000
( (i.e. Total assets -Total debts 49-23 = 26 million)
Return on equity				14.61%