Question

xyz company, a 'for-profit' business, had revenues of $15 million in 2018. expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.3 million. xyz company, must pay taxes at a rate of 40 percent of pretax (operating) income. all revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. what was xyz's profit margin?

Answer 1

The first step is to find the operating income, which is revenue minus all expenses, including depreciation:

Operating income = Revenues - Expenses
Expenses = 75% of Revenues + Depreciation = 0.75 * 15,000,000 + 1,300,000 = $12,550,000
Operating income = $15,000,000 - $12,550,000 = $2,450,000

Next, we need to calculate the taxes owed on the operating income:

Taxes = 40% * Operating Income = 0.40 * $2,450,000 = $980,000

Finally, we can calculate the net income (profit) by subtracting the taxes from the operating income:

Net Income = Operating Income - Taxes = $2,450,000 - $980,000 = $1,470,000

The profit margin is the net income divided by the revenues:

Profit Margin = Net Income / Revenues = $1,470,000 / $15,000,000 = 0.098 or 9.8% (rounded to one decimal place)

Therefore, the profit margin for XYZ Company is 9.8%.