158
docx
keyboard_arrow_up
School
University of the People *
*We aren’t endorsed by this school
Course
3304
Subject
Finance
Date
Nov 24, 2024
Type
docx
Pages
2
Uploaded by BailiffIce11081
Operating Profit Margin
The proportion of revenue that is left over as operational profit after operating expenditures are subtracted is known as the operating profit margin, which is a financial statistic used to evaluate a company's profitability; "(it) measures how much profit a company makes on a dollar of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax" (Hayes, 2023). It shows how well a business makes money from its primary activities.
Asset Turnover
A financial ratio called asset turnover assesses how well a business uses its assets to produce income. It evaluates how well a company turns a profit on all of its assets; "the ratio compares the dollar amount of sales or revenues to
the company's total assets to measure the efficiency of the company's operations" (CFI Team, 2023).
Division managers can utilize asset turnover and operational profit margin as
key metrics to increase return on investment (ROI). Here are some applications for each ratio:
Operating Profit Margin:
Division managers might concentrate on raising revenue, cutting operating costs, or doing both in order to improve operating
profit margin. Managers can find areas where cost reductions can be achieved without sacrificing the quality of their products or services by dissecting the components of operational expenditures. They can also look for ways to boost sales, such as price optimization, low-cost advertising campaigns, or innovative product or service development. Division managers
may raise the profitability of their division and eventually result in a greater return on investment by optimizing the operational profit margin.
Asset Turnover:
Division managers may increase asset turnover by maximizing how assets are used to produce income. They are able to determine whether assets are underused or non-performing by analyzing the
composition of the assets. Managers can guarantee that assets are producing
the most income by improving asset allocation and usage. They can assess the necessity of extra inventory, unused machinery, or underutilized spaces, for instance. Division managers may increase income from the same amount of assets by increasing asset turnover, which raises ROI.
In conclusion, division managers may pinpoint opportunities for increased profitability and asset usage in their divisions by utilizing operating profit margin and asset turnover ratios. Managers may improve the return on investment (ROI) of their division and help to guarantee the overall success of
the company.
References
CFI Team. (2023, October 4).
Operating Asset Turnover Ratio
. Corporate Finance
Institute; Corporate Finance Institute.
https://corporatefinanceinstitute.com/resources/accounting/
operating-asset-turnover-ratio/
Hayes, A. (2023).
Operating Margin: What It Is and the Formula for Calculating It, With Examples
. Investopedia.
https://www.investopedia.com/terms/o/operatingmargin.asp
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Documents
Related Questions
Please select the option that best analyzes the PROFIT MARGIN for our example company.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Profit margin is not a good measure of how well a company performs, so this information does not indicate how well our company is performing financially.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 15-20% of its sales as income, which is a comfortable profit margin.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is a very high profit margin.
The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which…
arrow_forward
The net profit margin tells how much profit a company makes for every dollar it generates in revenue. If N is the net income (the income after taxes have been paid) and R is the total revenue, then the net
profit margin M is given by
N
M(N, R)
R
=
A certain company pays a tax rate of 20% on its income.
(a) Use I for the income before taxes, and express the net income N in terms of I. (Be careful: N is the part of I left after taxes-not the part you pay in taxes.)
N =
(b) Use a formula to express the net profit margin in terms of the variables I and R.
M =
arrow_forward
The net profit margin tells how much profit a company makes for every dollar it generates in revenue. If N is the net income (income after taxes have been paid) and R is the total revenue, then the net profit margin M is M (N,R) =N/R. This company pays a tax rate of 35% on its income.
A) let I represent the company’s income before taxes. Express N as a function of I. (n is the part of I left after taxes)
B) express M in terms of I and R
arrow_forward
Which of the following statements are true about profitability ratios? Check all that apply.
If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales.
If a company’s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.
An increase in the return on assets ratio implies an increase in the assets a firm owns.
If a company issues new common shares but its net income does not increase, return on common equity will increase.
arrow_forward
Alternative measures of Profit: Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations:
A firm with total revenues of $150 million, explicit costs of $90 million, and implicit costs of $40 million.
A firm with total revenues of $125 million, explicit costs of $100 million, and implicit costs of $30 million.
A firm with total revenues of $100 million, explicit costs of $90 million, and implicit costs of $20 million.
A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000
arrow_forward
I need help finding the accurate solution to this general accounting problem with valid methods.
arrow_forward
Net profit margin?
arrow_forward
I need help with questions 1-6
arrow_forward
Can you explain the steps for solving this Financial accounting question accurately?
arrow_forward
When sales volume increases, which company will experience a larger percentage increase in profit: company X, which has mostly fixed expenses, or company Y, which has mostly variable expenses?
arrow_forward
What profit margin is required for this general accounting question?
arrow_forward
Can you explain this general accounting question using accurate calculation methods?
arrow_forward
I need guidance with this financial accounting problem using the right financial principles.
arrow_forward
By modifying the break-even equation, a company is able to determine the sales required to earn a ________________ profit.
a.banker's
b.working capital
c.target
d. contribution
arrow_forward
PROBLEM 11-17 Return on Investment (ROI) and Residual Income LO11-1, LO11-2
Financial data for Joel de Paris, Inc., for last year follow:
Joel de Paris, Inc.
Balance Sheet
Beginning
Ending
Balance
Balance
Assets
Cash
$ 140,000
$ 120,000
Accounts receivable
450,000
530,000
Inventory
320,000
380,000
Plant and equipment, net
680,000
620,000
Investment in Buisson, S.A.
280,000
170,000
250,000
Land (undeveloped)
180,000
Total assets
$2,020,000
$2,100,000
Liabilities and Stockholders' Equity
Accounts payable.
$ 360,000
$ 310,000
Long-term debt
Stockholders' equity
1,500,000
1,500,000
160,000
290,000
Total liabilities and stockholders' equity
$2,020,000
$2,100,000
Joel de Paris, Inc.
Income Statement
Sales
$4,050,000
Operating expenses
Net operating income
3,645,000
405,000
Interest and taxes:
Interest expense
$150,000
Таx expense
110,000
260,000
Net income
$ 145,000
The
company paid dividends of $15,000 last year. The "Investment in Buisson, S.A.," on the
balance sheet represents an…
arrow_forward
a. Present a cost-profit-volume analysis that shows the effect of adding the $8,500 annual
premium to the company's fixed costs by showing current and revised CVP Income Statements.
Include a column to the right of each income statement where each line item is expressed as a
percentage of sales (called a common size income statement).
b. Visualize the changes to net income in a chart.
c. Advise the company using your quantitative support and qualitative. reasoning as to whether
the company should purchase the insurance.
A-Float Pools Company
Income Statement (Pools Maintenance Div.)
For the Year Ended December 31, 2022
In
Sales (2,000 clients)
Cost of Services
Gross profit
Operating expenses
Selling
Administrative
Net Income
$165,000
$225,000
$1,100,000
627,000
$473,000
$390,000
$83.000
arrow_forward
Which of the following is true regarding the contribution margin ratio of asingle product company?
a. As fixed expenses decrease, the contribution margin ratio increases
b. The contribution margin ratio increases as the number of units sold increase
c. The contribution margin ratio multiplied by the variable expense per unit equals thecontribution margin per unit
d. If sales increase, the peso increase in net operating income can be computed bymultiplying the contribution margin ratio by the peso increase in sales
arrow_forward
Please provide the answer to this general accounting question using the right approach.
arrow_forward
Assume that you are the president of your company and paid a year-end bonus according to the amount of net income earned during the year. When prices are rising, would you choose a FIFO or weighted average cost flow assumption? Explain, using an example to support your answer. Would your choice be the same if prices were falling?
I need an example with net income for weighted average
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you

Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning

Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub

Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Related Questions
- Please select the option that best analyzes the PROFIT MARGIN for our example company. The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Profit margin is not a good measure of how well a company performs, so this information does not indicate how well our company is performing financially. The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 15-20% of its sales as income, which is a comfortable profit margin. The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which is a very high profit margin. The profit margin indicates the amount of sales that are ultimately realized as income after all expenses are considered. Our company retains between 80-85% of its income as sales, which…arrow_forwardThe net profit margin tells how much profit a company makes for every dollar it generates in revenue. If N is the net income (the income after taxes have been paid) and R is the total revenue, then the net profit margin M is given by N M(N, R) R = A certain company pays a tax rate of 20% on its income. (a) Use I for the income before taxes, and express the net income N in terms of I. (Be careful: N is the part of I left after taxes-not the part you pay in taxes.) N = (b) Use a formula to express the net profit margin in terms of the variables I and R. M =arrow_forwardThe net profit margin tells how much profit a company makes for every dollar it generates in revenue. If N is the net income (income after taxes have been paid) and R is the total revenue, then the net profit margin M is M (N,R) =N/R. This company pays a tax rate of 35% on its income. A) let I represent the company’s income before taxes. Express N as a function of I. (n is the part of I left after taxes) B) express M in terms of I and Rarrow_forward
- Which of the following statements are true about profitability ratios? Check all that apply. If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. If a company’s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a company issues new common shares but its net income does not increase, return on common equity will increase.arrow_forwardAlternative measures of Profit: Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations: A firm with total revenues of $150 million, explicit costs of $90 million, and implicit costs of $40 million. A firm with total revenues of $125 million, explicit costs of $100 million, and implicit costs of $30 million. A firm with total revenues of $100 million, explicit costs of $90 million, and implicit costs of $20 million. A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000arrow_forwardI need help finding the accurate solution to this general accounting problem with valid methods.arrow_forward
- When sales volume increases, which company will experience a larger percentage increase in profit: company X, which has mostly fixed expenses, or company Y, which has mostly variable expenses?arrow_forwardWhat profit margin is required for this general accounting question?arrow_forwardCan you explain this general accounting question using accurate calculation methods?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College

Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning

Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub

Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College