Question

Damita Company reported net income of \(48,025 and net sales of \)425,000 for the current year. Calculate

the company’s profit margin and interpret the result. Assume that its competitors earn an average profit

margin of 15%.

Short answer

Answer:

The net profit margin is 11.3%

Step-by-step solution

Definition of net income

Net income is the income that remains after deducting all expenses from revenue.

 Calculation of net profit margin

$\begin{array}{rcl}\mathbf{Net} \mathbf{Profit} \mathbf{Margin}& \mathbf{=}& \frac{\mathbf{Net} \mathbf{Income}}{\mathbf{Net} \mathbf{Sales}}\mathbf{\times } \mathbf{100}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{025}}{\mathbf{\$}\mathbf{425}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{100}\\ & \mathbf{=}& \mathbf{11}\mathbf{.}\mathbf{3}\mathbf{\%}\end{array}$

Hence, the net profit margin of Damita Company is 11.3%

The net profit margin of Damita company is less than its competitor’s margin.