. James builds brick walls for custom homes. His annual sales are approximately

Question

.       James builds brick walls for custom homes.  His annual sales are approximately $300,000, and his net income is $18,000.  He has assets of $100,000 invested in this business.  Tom sells window shades.  His annual sales are approximately $900,000, and his net income is $27,000.  He has assets of $150,000 invested in his business.

i)                    Compute the net profit margin for both James and Tom.

ii)                  Compute the asset turnover for both James and Tom.

iii)                Compare the profitability of these two firms, and discuss the similarities and differences.

Explanation / Answer

i) net profit margin of james = 18000/ 300000= 6%

net profit margin of tom = 27000/900000 = 3%

ii) asset turnover of james = 300000/100000 = 3

asset turnover of tom = 900000/150000 = 6

iii) james is profitable tha tom since its profitable margin is more

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