I need some assistance with understanding the following equation. I need to find the adjusted Net Income to calculate gross profit margin. Why is “Charges, included in cost of goods sold for inventory write-downs, after tax” added to Net Income? Also, if these charges are already “after tax”, why do we reapply the tax (1-.3) for this calculation?
Rolby’s adjusted net profit margin must be computed using net income (NI) under FIFO and excluding charges for increases in valuation allowances.
NI (adjusted) = NI (FIFO method) + Charges, included in cost of goods sold for inventory write-downs, after tax
= $327 million + 15 million × (1 – 30%)
= $337.5 million
Therefore, adjusted net profit margin equals:Net profit margin = NI/Revenues = $337.5/$5,442 = 6.20%
