Profitability ratios
Response to the following problem:
Dr.Zhivago Diagnostics Corp. income statements for 2010 is as follows:
Sales $2,000,000
Cost of goods sold 1,400,000
Gross profit 600,000
Selling and administrative expense 300,000
Operating profit 300,000
Interest expense 50,000
Income before taxes 250,000
Taxes (30%) 75,000
Income after taxes $ 175,000
a. Compute the profit margin for 2010.
b. Assume in 2011, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes.
What are income after taxes and the profit margin for 2011?