Question

A firm has $61,300 in receivables and $391,400 in total assets. The firm has a total asset turnover rate

of 1.4 and a profit margin of 6.3 percent. What is the days’ sales in receivables?

Peter Inc. has sales of $489,700. Earnings before interest and taxes are equal to 16 percent of sales.

For the period, the firm paid $5,200 in interest. The tax rate is 28 percent. What is the profit margin?

Answer 1

1). Sales = Total Asset Turnover Rate x Total Assets = 1.4 x $391,400 = $547,960

Receivable Turnover Ratio = Sales / Receivables = $547,960 / $61,300 = 8.94 times

Days' sales in receivables = 365 / Receivable Turnover Ratio = 365 / 8.94 = 40.83 days

2). EBIT = 16% x Sales = 0.16 x $489,700 = $78,352

Net Income = [EBIT - Interest] x (1 - t) = [$78,352 - $5,200] x (1 - 0.28) = $73,152 x 0.72 = $52,669.44

Profit Margin = Net Income / Sales = $52,669.44 / $489,700 = 10.76%