Question

For the year ended June 30, 2017, Cullumber Clothing Company has total assets of $81,000,000, ROA of 10.00 percent, ROE of 16.00 percent, and a net profit margin of 9.00 percent. What are the company's net income and net sales? Calculate the firm’s debt-to-equity ratio.

The company’s net income is $

net sales are $

and the firm’s debt-to-equity ratio is  %.

Answer 1

Step 1:

Return on Assets = Net Income / Total Assets

10% = Net Income / $81,000,000

Net Income = $8,100,000

Step 2:

Return on Equity = Net income / Equity

16% = $8,100,000 / Equity

Equity = $50,625,000

Step 3:

Total Assets = Equity + Debt

$81,000,000 = $50,625,000 + Debt

Debt = $30,375,000

Debt to Equity = Debt *100 / Equity

= $30,375,000 * 100 / $50,625,000

= 60%

Step 4:

Profit Margin = Net Income / Net sales

9% = $8,100,000 / Net Sales

Net Sales = $90,000,000

Therefore,

Net Income is $8,100,000

Net sale are $90,000,000

Debt to Equity ratio is 60%