PT2 SU2

Question 1

Gross Profit Margin

(not percentage)

Answer 1

Gross profit margin is the percentage of gross revenues that remains with the firm after paying for merchandise.

Question 2

How is the gross profit margin percentage calculated?

Answer 2

Gross profit margin percentage =
(Net sales – Cost of goods sold) ÷ Net sales

Question 3

What is operating profit margin?

Answer 3

Operating profit margin is the percentage that remains after selling and general and administrative expenses have been paid. It is calculated as operating income divided by net sales.

Question 4

How is the return on assets calculated?

Answer 4

Return on assets = Net income ÷ Average total assets

Question 5

What is the formula for the return on equity?

Answer 5

Return on equity = Net income ÷ Average total equity

Question 6

How is return on assets calculated under the DuPont model?

Answer 6

DuPont ROA = Net income ÷ Average total assets
= (Net income ÷ Net sales) × (Net sales ÷ Average total assets)
ROA broken down to two component ratios, focused on the income statement and emphasizes the idea that shareholder return explained in terms of profit margin and efficiency of asset management.