1. Jupiter Explorers has $9,800 in sales. The profit margin is 5%. There are 4,500 shares of stock outstanding. The market price per share is $1.90. What is the price-earnings ratio?
2. A firm has a return on equity of 18%. The total asset turnover is 1.7 and the profit margin is 6%. The total equity is $7,200.
What is the amount of the net income?

17.43

132.19

Explanation:

Net profit margin is an example of a profitability ratio. It measures he ability of a firm to earn a profit from its assets

Net profit margin = Net income / Revenue

0.05 = x / 9800

net income = 490

net income per share = 490 / 4500 = 0.109

p/e = 1.9 / 0.109 = 17.43

Using the Dupont formula, ROE can be determined using:

ROE = Net profit margin x asset turnover x financial leverage

ROE = (Net income / Sales) x (Sales/Total Assets) x (total asset / common equity)

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