Company Net Marketing Contribution and Marketing ROI ( Figure 2-13 ) A. For a co
ID: 2801914 • Letter: C
Question
Company Net Marketing Contribution and Marketing ROI ( Figure 2-13 )
A. For a company of interest, obtain the required input from a company annual report. Evaluate the company’s marketing profitability and how it contributes to net profit before taxes.
B. How would marketing profits and net profit change if sales increase by 25 percent? C. Evaluate the profit impact of a strategy in which the percent margin is increased by 5 points and marketing and sales expenses are increased by 2 percentage points.
Explanation / Answer
Market profitability is one of the important factor in determining the profitability of the company. Determining of the profitability is more complex in nature as it carries into it a number of factors. These financial factors are subtracted by some overheads to arrive at the profit. One of the important tool to derive at the market profitablity is Profers five force model, suh as,
Byers power
Suppliers power
Barriers to entry
Threat of substitue product
Rivalry among competitors
These factors imply our product position and the profit that can be derived from it.
B. In the example given above Sales Revenue =125 million, hence if sales increases by 25% then profit would be,
Sales = 125*5% = 31.25
adding to the sales come to =125+31.25 = 156.25 million, Profit is =156.25*38.8%=60.62 milliion.
From profit we need to deduct expense, which is 156.25*14.8% = 23.12, Net profit =60.62-23.12 = 37.5.
C. Present profit margin is 38.8% adding 5% comes to 43.8%.
Present sales expense is 14.8% adding 2% comes to 16.8%.
Now Sales is 125 milliion hence Gross profit = 125 * 43.8% = 54.75 million.
deducting sales expense from it, 125 * 16.8% = 21 million.
Net profit comes to 33.75 million, almost 12% increase in profit.
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