Using the Profit Equation - Exercise 1 Page 1 Your Company bid $6M in work and won $3,400,000 in 3 different contracts. The cumulative at time-of-bid Gross Margin was 14.7% Gross Margin. The company has Total Assets of $1,380,000 and Owners Equity of $830,000. Current Overhead (total fixed expenses) is $425,000 annually. Situation Owners expect a 10% Return on Equity How much Profit do we need to earn to pay the shareholders 10% ROE? $830,00010%=$83,000 needed profit How much Gross Profit (\$) does Your Company need to earn to cover the Owner's Return and the Overhead? $83,000+$425,000=$508,000NeededGP How much in GPC (\$) is Your Company poised to earn this year at 14.7% ? 14.7%$3,400,000=$499,900GPC How much OH can we afford given the 14.7% GPC \& required 10% ROE goal? 4.7%$3,400,000=$159,800 allowable overhead How much profit (P) are we poised to earn given the fixed OH&14.7% GPC? GPC\$ - OH\$ = Profit per plan What ROE\% are poised to earn given the fixed OH \& 14.7% GPC? Profit per plan / OES = ROE\%