Dr. Zhivago Diagnostics Corporation's income statement for 20X1 is as follows: $ 2,800,000 1,780,000 $ 1,020,000 Sales Cost of goods sold Gross profit Selling and administrative expense Operating profit Interest expense Income before taxes Taxes (30%) Income after taxes 315,000 $ 705,000 51,700 $ 653,300 195,990 $ 457,310
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
A. Compute the profit margin for 20X1.
B.
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Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
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