Question

It takes Shark Inc. 27.67 days on average to collect its receiveables. They have $75,000 in cash , inventory of $100,000, receivables of $50,000 and net fixed assets of $125,000. These are the company’s only assets and they have a 3.4% profit margin. How much does the company generate in sales for every dollar in assets?

A. $1.88

B. $4.25

C. $2.87

D. $13.54

E. $3.06

Answer 1

Answer: The correct answer is A i.e. 1.88

Days on Average Collection receivable = 365 days / Accounts Receivable Turnover
27.67 = 365 /Accounts Receivable Turnover
Accounts Receivable Turnover = 365/ 27.67
Accounts Receivable Turnover = 13.19

Accounts Receivable Turnover = Sales / Accounts Receivable
13.19 = Sales / $50,000
Sales = 13.19 * $50,000
Sales = $659,500

Total Assets = Cash + Inventory + Receivable + Net Fixed Assets
Total Assets = $75,000 + $100,000 +$50000 + $125,000
Total Assets = $350,000

Total Assets Turnover = Sales / Total Assets
Total Assets Turnover = $659,500 / $350,000
Total Assets Turnover = 1.88