Concept Introduction:
Profit Margin Ratio:
Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:
Profit Margin = Net Income / Sales
Asset Turnover Ratio:
Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:
Return on Investment = Net Income / Average Total Assets
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Requirement-a:
To Calculate:
The Margin and Net Income
Requirement-b:
To Calculate:
The Return on Equity
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Chapter 3 Solutions
Accounting: What the Numbers Mean
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