Compute the profit margin profitability ratios

Assignment Help Accounting Basics

Reference no: EM132880109

Jaffe and Jordan want to use financial planning models to prepare a projected (pro forma) financial statement to determine the profitability and financial health of the business for next year, ending Dec 31, 2021.

Use the pro forma financial statement below to answer the following questions:

PRO FORMA INCOME STATEMENT

($millions)

Total operating revenues 82

Less expenses 27

Less depreciation 9

Earnings before interest and taxes 46

Less interest 4

Net income before taxes 42

Less taxes @ 23.8% 10

Net income 32

PRO FORMA BALANCE SHEET

Assets:

Cash 19

Other current assets 28

Net Fixed Assets 40

Total Assets 87

Liabilities and Equities:

Accounts payable 12

Long-term debt 28

Stockholders' Equity 47

Total Liabilities & Equities 87

Problem a. What is the estimated profit of the business for 2021?

Problem b. Compute the following profitability ratiosand explain to Jaffe and Jordan whether the business looks profitable relative to the performance of the industry.

i. Profit margin

ii. Return on assets

iii. Return on equity

iv. calculate and explain operating cash flow

Reference no: EM132880109

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