1. Given the following information: Categories Sales Cost of goods sold Variable
ID: 2519949 • Letter: 1
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1. Given the following information: Categories Sales Cost of goods sold Variable expenses Fixed expenses Inventory Accounts receivable $4,000,000 Other current assets S Fixed assets Values S32,000,000 $20,000,000 S 4,000,000 S 6,000,000 S 8,000,000 S 6,000,000 a. What is the net profit margin for this firm? b. What is the asset turnover? c. What is the return on assets? d. What is the size of the total assets used by the firm? 2. For the prior question, management wants to double the return on assets, without affecting sales, cost of goods sold, variable expenses, fixed expenses, or fixed assets. Rather it wants to focus on either inventory or accounts receivable a. Can management focus on either inventory reductions or accounts receivable reductions alone? b. How can it achieve this objective? c. Do you see any downsides in pursuing this objective through a focus on inventory/accounts receivable reductions!Explanation / Answer
Sales 32,000,000.00 COGS 20,000,000.00 Gross Margin 12,000,000.00 Variable Expenses 4,000,000.00 Fixed Expenses 6,000,000.00 Net Profit Margin 2,000,000.00 a Net Profit Margin 2,000,000.00 Net Profit Margin Ratio= Net Profit Margin/ Sales*100 Net Profit Margin Ratio= 2000000/32000000 = 6% b Assets Turnover = Net Sales/ Average Total Assets Net Sales 32,000,000.00 Total assets= 8000000+4000000+3000000+6000000 21000000 Assets Turnover = 32000000/21000000 = 1.52 c Return on Assets Net Income/Average Total Assets Net Income 2,000,000.00 Total assets= 21,000,000.00 Return on Assets 2000000/21000000 = 10% d) Size of Total Assets= 21,000,000.00
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