. Use the following data from a firm\'s pro forma (i.e., projected or forecasted

Question

. 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                               $ 500 million

          Net income                             30 million

          Total Assets                         1000 million     

          Stockholders' Equity                  750 million

          Number of Common Stock Shares          10 million

          Price per share of common stock $75.00

Explanation / Answer

net profit margin = 30/500 = 0.06 = 6%

return on assests = 30/1000 = 0.03 = 3%

return on equity = 30/750 = 0.04 = 4%

price earning ratio = 30/10 = 3

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