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data available prior to passage of the 1996 Act.

4.2Net Profit Margins

The net profit margin is defined as the ratio of a firm’s net income to its sales.  Thus, the Net Profit Margin reflects the operating performance of the firm after netting out interest and taxes from the EBIT Margin, as discussed in the previous section.  A comparison of Chart V that displays EBIT margins with Chart VI that shows Net Profit Margins suggests that while radio companies are realizing greater gross profits than the typical S&P 500 company, they are netting less than the benchmark S&P 500.  This relationship could occur because radio companies are either paying more in taxes than other firms are, or they are paying more in interest than other firms (e.g., use more debt to finance operations).  To address this question, it is necessary to examine the debt loads of radio companies.

4.3Total Debt as a Percentage of Total Capital

Total debt as a percentage of total capital represents a measure of a firm’s debt load.  Quarterly data on total debt as a percentage of total capital are presented in Chart VII.  The results in Chart VII suggest that the publicly-traded radio companies have generally used more debt than the typical S&P 500 company to finance its operations and growth.  Therefore, the radio companies’ lower net profit margins result, at least in part, from the greater interest expense of these companies, which is then related to the higher debt loads of the radio companies, compared to the debt loads of the S&P 500 firms.  Another effect of the greater debt loads (leverage) is the increase in the volatility of radio-sector earnings compared to the less-leveraged S&P 500 companies.  This increase in volatility can be seen by comparing the variability of the radio-sector median EBIT margin and net profit margin values with those of the

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