Using the Profit Equation - Exercise 2 Page 3 Your Company bid $65M in work and won $35,400,000 in contracts. The cumulative at time-of-bid Gross Margin was 12.8% Gross Margin. The company has Total Assets of $9,780,000 and Owners Equity of $3,830,000. Current Overhead (total fixed expenses) is $3,425,000 annually. Situation Owners expect a 15% Return on Equity How much Profit do we need to earn to pay the shareholders 15% ROE? OE $ X ROE\% = Needed Profit (NP) How much Gross Profit (\$) does Your Company need to earn to cover the Owner's Return and the Overhead? NP\$ + OH\$ = Needed GPC\$ How much GPC (\$) will is Your Company poised to earn this year at 12.8% GPC? GPC%Revenue$=GPC$ How much OH can we afford given the 12.8% GPC \& required 15% ROE goal? GPC$-NP$=AffordableOH(AOH) How much profit are we poised to earn given the above fixed OH&12.8% GPC? GPC$OH$=Profitperplan What ROE\% are poised to earn given the fixed OH&12.8%GPC ? Profit per plan OE $= ROE % Using the Profit Equation - Exercise 2 Page 3 Your Company bid $65M in work and won $35,400,000 in contracts. The cumulative at time-of-bid Gross Margin was 12.8% Gross Margin. The company has Total Assets of $9,780,000 and Owners Equity of $3,830,000. Current Overhead (total fixed expenses) is $3,425,000 annually. Situation Owners expect a 15% Return on Equity How much Profit do we need to earn to pay the shareholders 15% ROE? OE $ X ROE\% = Needed Profit (NP) How much Gross Profit (\$) does Your Company need to earn to cover the Owner's Return and the Overhead? NP\$ + OH\$ = Needed GPC\$ How much GPC (\$) will is Your Company poised to earn this year at 12.8% GPC? GPC%Revenue$=GPC$ How much OH can we afford given the 12.8% GPC \& required 15% ROE goal? GPC$-NP$=AffordableOH(AOH) How much profit are we poised to earn given the above fixed OH&12.8% GPC? GPC$OH$=Profitperplan What ROE\% are poised to earn given the fixed OH&12.8%GPC ? Profit per plan OE $= ROE %