Question

how can I calculate profit based off these numbers

profit margin?

Selected Statistics Caneton Manufacturing 2017 2018 2019 Current ratio 2.7 2.8 Quick ratio 1.4 1.6 Inventory turnover 5.7 5.8 Total asset turnover 1.9 2.0 1.9 Return on sales 6.00% 6.50% 7.00% Return on assets 11.40% 13.00% 13.30% Return on equity 19.04% 27.66% 30.2% Total debt-to-assets 0.40 0.53 0.56 Price-earnings ratio 13.7 14.0 15.0 Average stock price $21.78 $24.92 $31.50 • Source: Dons industry ratios (data have been adjusted for this case)

Answer 1

DuPont equation can be used to calculate profit margin. DuPont equation is

ROE = profit margin*total asset turnover*equity multiplier

As equity multiplier = Assets/equity

So, multiplying and dividing NI, we get

Equity multiplier = (NI/equity)/(NI/assets) = ROE/ROA

Putting this in equation we get

ROE = profit margin*total assets turnover*ROE/ROA

=> Profit Margin = ROA/total assets turnover.

So, Profit margin can be calculated by dividing ROA with total assets turnover.