Question

1. What is the Profit Margin (both definition and in words)? If the benchmark for operating income is 4.67% for the Health Care industry, how does St. John's compare to this benchmark? What are the implications to St. John's of this ratio?

Answer 1

Answer: Profit margin- It is the amount by which revenue exceeds cost in a business. It is the difference between income and expenditures.

Profit margin ratio- This ratio tells the percentage of return on sales. It is calculated by dividing Net profit by sales/total revenues. It is the company's profit after deducting all the expenditures, interest and tax also. If preferred dividend is there, it is subtracted from the net profit and remaining profit is available for shareholders.

Net profit margin = Net profit / Net Sales

Operating profit margin- It is the profit before deducting interest and tax.

Operating profit margin = Earning before interest and tax / Net Sales

If the benchmark for operating income is 4.67%, it is the industry standard or industry average, If St. John's operating income is higher than this percentage then it is doing good in the industry as compare to its peers. If St.John's operating income is lower than 4.67% then it is doing below average in the industry.