Question

The Dahlia Company has net income of $273,650 and pays dividend of $58,720. There are currently 34.92 days’ sales in receivables. Total assets are $1,047,800, total accounts receivable are $206,430, and the debt–equity ratio is .42.

What is the company’s profit margin?  (Express your answer as percentage.)

Profit margin:  %  
  
What is the company’s total asset turnover?  (Express your answer as times.)
    
Total asset turnover:  times
  
What is the company’s ROE?  (Express your answer as percentage.)  
  
ROE:  %

What is the company's sustainable growth rate?  (Express your answer as percentage.)  

Sustainable growth rate

Answer 1

Solution:

Days sales in recievable = 34.92

Receivables =  $206,430

Days sales in recievable = 365 / ( Sales / Account receivables)

Sales = 365 * Account receivables / Days sales in recievable = 365 * $206,430 / 34.92 = $2,157,701.89

Profit margin = Net Income / Sales = $273,650 / $2,157,701.89 = 12.68%

Total asset turnover = Sales / Total assets = $2,157,701.89 / $1,047,800 = 2.06

Debt / equity = 0.42

Debt/Equity +1 = 1+ 0.42

(Debt + Equity) / Equity = 1.42

Asset / equity = 1.42

Equity = Asset /1.42 = $1,047,800 / 1.42 = 737,887.32

ROE = Net income / Equity = $273,650/737,887.32= 37.09%

Dividend payout ratio = Dividend / Net profit = $58,720 / $273,650 = 0.21458

Sustainable growth rate = ROE * (1-Dividend payout ratio) = 37.09% *(1-0.21458) = 29.13%