# Calculate profitability measures The following information was available for the year ended December 31, 2016:Sales \$  400,000Net income 60,000Average total assets 1,000,000Average total stockholders' equity  600,000Dividends per share 2.40Earnings per share 6.00Market price per share at year-end 96.00Required:Calculate margin, turnover, and ROI for the year ended December 31, 2016.Calculate ROE for the year ended December 31, 2016.Calculate the price/earnings ratio for 2016.Calculate the dividend payout ratio for 2016.Calculate the dividend yield for 2016.

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Calculate profitability measures The following information was available for the year ended December 31, 2016:
Sales \$  400,000
Net income 60,000
Average total assets 1,000,000
Average total stockholders' equity  600,000
Dividends per share 2.40
Earnings per share 6.00
Market price per share at year-end 96.00
Required:
Calculate margin, turnover, and ROI for the year ended December 31, 2016.
Calculate ROE for the year ended December 31, 2016.
Calculate the price/earnings ratio for 2016.
Calculate the dividend payout ratio for 2016.
Calculate the dividend yield for 2016.

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Step 1

Margin:

Margin means the percentage of profit in the sales, it can be calculated by dividing net income by sales. This ratio is higher better.

Return on Investment (ROI):

It measures the results or efficiency of an investment. It shows the efficiency of the business investment. It is can be calculated as a ratio of net income and average total investment.

Return on equity (ROE):

It also measures the financial performance of the business in terms of return earned against the average stockholder’s equity.

Price earnings ratio:

It is calculated by dividing market price per share by earning per share. It helps to check whether or not the share is undervalued or overvalued.

Dividend payout ratio:

It is that part of earnings which is distributed as a dividend to the shareholders. Thus, to calculate dividend payout ratio, dividend per share is divided by earnings per share.

Dividend yield:

It measures the amount distributed as a dividend to the shareholders concerning the market price per share. Thus, to calculate dividend yield, dividend per share is divided by the current share price.

Step 2 help_outlineImage TranscriptioncloseCalculation of margin: Profit Margin Net incom e Sales x100 \$60,000 x100 \$400,000 15% Calculation of turnover Sales Turnover Average total assets \$400, 000 S1,000, 000 0.4 Calculation of ROI: Net Income x100 Average Total Assets \$60,000x100 ROI \$1,000,000 = 6% fullscreen
Step 3 help_outlineImage TranscriptioncloseCalculation of ROE Calculation of dividend payout ratio: Dividend Payout = Dividend Per Slhare x100 Eamings Per Share Net income -x 100 Shareholders' Equity \$60,000100 ROE \$2.40 -x100 \$6 \$600,000 10% -40% Calculation of price earnings ratio: Calculation of dividend yield ratio: Dividend Yield = Dividend Per Share Market Price Market Price x100 Price Earnings Ratio Eamings Per Share \$96 \$2.40 x 100 \$96 \$6 = 16 2.5% fullscreen

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