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Ratios and Income Statement

1. The Sally Corporation's income statement is given below.

Sally Corporation

Sales.......................................\$250,000

Cost of Goods Sold....................... 145,000

Gross Profit.................................105,000

Fixed Charges (other than interest)...... 25,000

Income before interest and taxes...........80,000

Interest.........................................20,000

Income before taxes......................... 60,000

Taxes (35%)................................... 21,000

Income after taxes............................\$39,000

a. What is Sally's Time-Interest-Earned Ratio?

b. What is the Fixed-Charge-Coverage Ratio?

c. What is the Net Profit Margin?

d. What is the Gross Profit Margin?

Solution Summary

Based on the scenario, this solution calculates the following using the correct formulas: Sally's Time-Interest-Earned Ratio, the Fixed-Charge-Coverage Ratio, the Net Profit Margin and the Gross Profit Margin.

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