The Dahlia Company has net income of $168,850. There are currently 33.05 days’ s
ID: 2816113 • Letter: T
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_______ %
Explanation / Answer
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%
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