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    alvdz's Avatar
    alvdz Posts: 1, Reputation: 1
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    #1

    Jan 17, 2007, 06:30 PM
    Profit Margin
    I'm stuck on this one:

    Easter Egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000

    A. If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales).



    I know to figure profit margin, you take net income and divide it by sales, but with the information given, I am stuck on how to determine the sales in order to plug it into the equation. I feel like the answer is so simple, I'm just not seeing it.
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Jan 17, 2007, 11:55 PM
    asset turnover ratio = REVENUE / TOTAL ASSETS
    2.5 = REVENUE / 2,000,000
    REVENUE = 2.5 x 2,000,000
    REVENUE = 5,000,000

    Return on Sales = IBIT / Sales
    Returns on Sales = 200,000 / 5,000,000
    ROS = 4%
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