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The total profit margin or just profit margin is defined as net income divided by total revenues.Total profit Margin = Net Income / Total Revenues= $1,500 / $12,000= 0.125 = 12.5%1
Brandywine HomecareTotal profit margin of 12.5% of the Brandywine Homecare shows that homecare makes near about 12.5 cents on each dollar of the total revenues. Ability of organization to control the expenses is measured by the total margin. And on the other side, cash flow can be defined as the sum of the net income and non-cash expenses which is depreciation expense as reported by the Brandywine Homecare. Hence, the depreciation expense must have to be added to the net income reported.Cash Flow = Net Income + Depreciation Expense= $ 1,500 + $ 1,500= $ 3,000Brandywine Homecare’s cash flow would be $3 million.If Depreciation Expenses Doubled Brandywine Homecare’s 2007 Net Income, Total ProfitMargin and Cash FlowIf the company doubled its depreciation expense, which $3,000 (1,500+1,500), the calculations for is above will be as follows,Net Income = Total revenue – Total Expenses= $ 12,000 - $ 12,000= $ 0Total profit Margin = Net Income / Total Revenues= $0 / $12,000= 0 = 0 %Cash Flow = $ 0 + $ 3,000= $ 3,000Therefore, cash flow will remain same for both of the cases, i.e. $3 million.Difference between Cash and Accrual accounting1
Brandywine HomecareAccrual and cash accounting are the two similar methods for maintaining accurate accounting records. Cash accounting recognizes the income in case of the financial