Question

Please calculate the following based on the facts provided:

a. Gross Margin Ratio: Net sales = $1,000,000.00 & Cost of Goods Sold = $200,000.  

b. Return on assets ratio (ROA): Net Income = $350,000 & Average Total Assets = $2,500,000

c. Return on Equity (ROE): Net Income = $350,000 & Shareholder's Equity = $5,000,000.

d. Customer Acquisition Cost (CAC): Sales/Marketing Costs = $450,000 & number of new customers 1,000.

   e. Current Liquidity Ratio: Current Assets = $1,200,000 & Current Liabilities= $750,000

   f. Quick Liquidity Ratio (aka Acid Test Ratio): Total Current Assets = $1,300,000, Inventory = $175,000 & Current Liabilities = $600,000.

   g. Debt to Equity Ratio: Total Liabilities = $650,000 & Total Equity = $1,700,000.

Answer 1

(a) Gross Margin ratio = Gross margin / Net sales * 100

Gross margin = Net sales - Cost of the goods sold

Gross Margin = $1000000 - $200000 = $800000

Putting the values in the gross margin formula, we get,

Gross Margin ratio = $800000 / $1000000 * 100

Gross Margin ratio = 80%

(b) Return on assets ratio = Net income / Average total assets * 100

Putting the values in the gross margin formula, we get,

Return on assets ratio = $350000 / $2500000 * 100

Gross Margin ratio = 14%

(c) Return on equity ratio = Net income / Shareholders equity * 100

Putting the values in the gross margin formula, we get,

Return on equity ratio = $350000 / $5000000 * 100

Gross Margin ratio = 7%

(d) Customer acquisition cost = Marketing costs / No. of new customers

Putting the values in the gross margin formula, we get,

Return on assets ratio = $450000 / 1000

Customer acquisition cost = $450

(e) Current ratio = Current assets / Current liabilities

Putting the values in the gross margin formula, we get,

Current ratio = $1200000 / $750000

Current ratio = 1.6

(f) Quick ratio = Current assets - Inventories / Current liabilities

Putting the values in the gross margin formula, we get,

Quick ratio = ($1300000 - $175000) / $600000

Quick ratio = $1125000 / 4600000

Quick ratio = 1.875

(g) Debt to equity ratio = Total liabilities / Total equity

Putting the values in the gross margin formula, we get,

Debt to equity ratio = $650000 / $1700000

Debt to equity ratio = 0.3823