Question

A firm has sales of $10, 000,000 in 2018, and operating income of $1,200,000 and net income of $650,000.    The firm has total equity at year end 2017 of $4,000,000, total asset of $7,000,000.   It also paid out $195,000 dividend in 2018.

1. Calculate its EBIT margin
2. Calculate its net margin
3. Calculate its total asset turnover
4. Calculate its equity multiplier.

Answer 1

Answer to Part a.
EBIT Margin = Operating Income / Sales * 100
EBIT Margin = $1,200,000 / $10,000,000 * 100
EBIT Margin = 12%

Answer to Part b.
Net Margin = Net Income / Sales * 100
Net Margin = $650,000 / $10,000,000 * 100
Net Margin = 6.50%

Answer to Part c.
Total Asset Turnover = Sales / Total Assets
Total Asset Turnover = $10,000,000 / $7,000,000
Total Asset Turnover = 1.43 times

Answer to Part d.
Equity Multiplier = Total Assets / Total Equity
Equity Multiplier = $7,000,000 / $4,000,000
Equity Multiplier = 1.75