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 Bender13 Posts: 6, Reputation: 2 New Member #1 Oct 2, 2007, 06:36 AM
Calculate Net Profit Margin
I was asked to calculate the Net Profit Margin by using Stockholders Equity, Asset Turnover and Equity Multiplier, but can't figure how to do it without the Return on Investment percentage, any ideas?

:confused:

Thanks
 Bender13 Posts: 6, Reputation: 2 New Member #2 Oct 2, 2007, 07:40 AM
Originally Posted by Bender13
I was asked to calculate the Net Profit Margin by using Stockholders Equity, Asset Turnover and Equity Multiplier, but can't figure how to do it without the Return on Investment percentage, any ideas?

:confused:

Thanks
Never Mind, I think I've got it.

Question: Williams Oil Company had a return on stockholders equity of 18 percent during 2006. Its total asset turnover was 1.0 times, and its equity multiplier was 2.0 times. Calculate the company's net profit margin.

a) Return on Stockholders Equity = Net Profit Margin x Total Asset Turnover x Equity Multiplier

So

.18 = (X)(1.0)(2.0)

X = .18/2.0 = .09

Reverse check using “a” calculation

(.09)(1.0)(2.0) = .18

Answer = .09

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