Question

Amounts are in thousands of dollars (except number of shares and price per share):

Kiwi Fruit Company Balance Sheet
Cash and equivalents	$	330
Operating assets		660
Property, plant, and equipment		2,700
Other assets		115
Total assets	$	3,805
Current liabilities	$	920
Long-term debt		1,035
Other liabilities		125
Total liabilities	$	2,080
Paid in capital	$	345
Retained earnings		1,380
Total equity	$	1,725
Total liabilities and equity	$	3,805

Kiwi Fruit Company Income Statement
Net sales	$	6,500
Cost of goods sold		(4,800	)
Gross profit	$	1,700
Operating expense		(1,000	)
Operating income	$	700
Other income		110
Net interest expense		(200	)
Pretax income	$	610
Income tax		(200	)
Net income	$	410
Earnings per share	$	2.05
Shares outstanding		200,000
Recent price	$	25.00

Kiwi Fruit Company Cash Flow Statement
Net income	$	410
Depreciation and amortization		173
Increase in operating assets		(80	)
Decrease in current liabilities		(122	)
Operating cash flow	$	381
Net (purchase) sale of property	$	150
Increase in other assets		(81	)
Investing cash flow	$	69
Net (redemption) issuance of LTD	$	(188	)
Dividends paid		(170	)
Financing cash flow	$	(358	)
Net cash increase	$	92

  

Calculate the gross and operating margins for Kiwi Fruit. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

Gross Margin

Gross Margin = (Gross Profit/ Revenue) * 100

Gross Margin = ($1,700/ $6,500)* 100

Gross Margin = ($1,700/ $6,500)* 100

Therefore, Gross Margin = 26.15%

Operating Margin

Operating Margin = (Operating Profit/ Revenue) * 100

Operating Profit (EBIT)

Operating Profit = Gross Profit - Operating Expense + Operating Income

Operating Profit = $ 1,700 - $ 1,000 + $700

Operating Profit = $ 1,400

Operating Margin = ($1,400/ $ 6,500) * 100

Operating Margin = 21.54%