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BUS 401wk1 - Operating Profit Margin 500,000 4,500,000...

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BUS 401.Finance – Assignments Week 1 Ratio Analysis Complete Study Problem 4.10 on page 124 of the text and submit to instructor. In parts "a" and "b," clearly label the calculation of the required ratios and solve using Excel. Use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round to the nearest whole number. In part "c," clearly label the pre and post renovation analysis using an Excel work sheet. Do a comparative analysis in a Word document not to exceed 200 words explaining whether the renovation should occur. A) Total Asset Turnover: 4,500,000 / 2,000,000 = 2.25
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Unformatted text preview: Operating Profit Margin: 500,000 / 4,500,000 = .11 (11%) Operating Return on Assets: (500,000/4,500,000)*(4,500,000/2,000,000) =.11 * 2.25 = .2475 (24.75%) = 25% B) .13 * (4,500,000/3,000,000) = .13 * 1.5 = .195 = 19.5% C) The way I understood the text, the operating profit margin is used to calculate the operating return on assets BEFORE interest expenses or taxes are taken out of the operating income. If this is the case, then the additional $50,000 rise in interest expense wouldn’t have an effect on the operating profit margin....
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