Question

The Dahlia Company has net income of $168,850. There are currently 33.05 days’ sales in receivables. Total assets are $857,000, total receivables are $148,200, and the debt–equity ratio is .70.
  
What is the company’s profit margin? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Profit margin _____ %
  
What is the company’s total asset turnover? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Total asset turnover _________times
  
What is the company’s ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
ROE_______ %

Answer 1

Step 1: Calculation of Net credit sales

Days Sales Outstanding = (Accounts Receivable / Net credit sales) *365 = 33.05

Net credit sales = Accounts Receivable*365 / 33.05

= (148200*365)/33.05

= 54093000/33.05

Net credit sales = 1,636,701.97

note: Since no information is provided regarding cash sales, it is assumed that the company has only credit sales. Then Net credit sales = Net sales

What is the company’s profit margin?

Profit margin = Net Income / Net Sales

= 168,850/1,636,701.97

= 0.1032

= 10.32%

What is the company’s total asset turnover?

Asset Turnover = Net Sales / Total Assets

= 1,636,701.97 / 857,000

= 1.91

What is the company’s ROE?

Step 2: Calculation of Shareholder's Equity

Shareholder's Equity = Total Assets - Total Liabilities

note: Since no information is provided regarding total liabilities, it is assumed that the company has only debt and equity in liability side.

Debt / Equity = .7

Debt = .7Equity

Shareholder's Equity = Total Assets - total liabilities

Total Assets - (debt+equity) = 857000-(.7Equity+Equity)

= 857000 - 1.7 equity

1.7 equity = 857,000

Equity = 8570000/1.7

Equity = 504117.65

Debt = .7*Equity = .7*504117.65

Debt = 352882.35

Return on Equity = Net Income/Shareholder's Equity

= 168850/504117.65

=.3349

=33.49%