Problem-solving: Use the following data from a firm\'s pro forma (i.e., projecte

Question

Problem-solving: Use the following data from a firm's pro forma (i.e., projected or forecasted) financial statements to calculate the following profitability ratios for the firm, assuming that all stocks are common stocks: (a) net profit margin; (b) return on total assets; (c) return on equity; (d) price-earnings ratio.

           Sales                 $150 million

          Net income              12 million

          Total Assets           600 million     

          Stockholders' Equity   200 million

          Number of Common Stock Shares    4 million

          Price per share of common stock $50.00

Explanation / Answer

a) Net income            12,000,000.00 Sales          150,000,000.00 Net Profit Margin = Net Income/Sales = 12m/150m 8.00% b) TotalAssets          600,000,000.00 Return on Total Assets = Net income/Assets   2.00% c) Stockholders Equity          200,000,000.00 Return on Equity = Net Income/Equity = 12m/200m 6.00% d) Net income            12,000,000.00 No of shares               4,000,000.00 EPS = Net income/No of shares                               3.00 Price per share                             50.00 PE Ratio = Price/EPS                             16.67

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