Clydesdale Company Profit Margin Calculation: A Step-by-Step Guide

To calculate the profit margin, we need to first determine the company's net income:

Net income = Sales - Operating expenses Net income = $4,500,000 - $3,600,000 Net income = $900,000

Next, we need to calculate the company's return on investment (ROI) to see if it meets the minimum requirement of 7%:

ROI = Net income / Invested assets ROI = $900,000 / $2,000,000 ROI = 0.45 or 45%

Since the ROI is higher than the minimum requirement of 7%, the company is meeting its target.

Finally, we can calculate the profit margin:

Profit margin = Net income / Sales Profit margin = $900,000 / $4,500,000 Profit margin = 0.2 or 20%

Therefore, the answer is (a) 20%.