A firm's financial statements reveal the following data:
interest coverage ratio 3.6X
interest expense rate 7.2%
depreciation 678
total assets 10,946
total asset turnover 1.46
The firm's operating margin equals ________.
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A. B. C. D.Explanation
Interest Coverage = EBIT/interest expense
Operating Profit Margin = EBDIT/Net sales
Interest expense rate = interest expense/total assets
Total Asset turnover = sales/total assets
Therefore, interest expense = 7.2%*10,946 = 788 and EBIT = 3.6*788 = 2,837.
So EBDIT = EBIT + depreciation = 2,837 + 678 = 3,515. Also, net sales = 1.46*10,946 = 15,981. This gives Operating Profit Margin = 3,515/15,981 = 21.99%.