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Return on assets/equity, current ratio

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Problem 1

Lily cosmetics has annual sales of $50m

Maintains a net after tax profit margin of 5%
Sales to asset ratio of 4
a. What is its return on assets?
b. If it's debt/equity ratio is .5, then what is the return on equity?

Problem 2
How would the following actions affect a firm's current ratio?
? Inventory is purchased and paid for with cash, it is not purchased on account
? The firm takes out a short term bank loan to pay its overdue accounts payable.
? A customer prepays in full for specially ordered merchandise that it will take 60 days to manufacture.
? Inventory is sold at the firm's normal 35% markup over cost

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Solution Summary

The solution explains the calculation of return on assets and return on equity. The solution also explains the impact on current ratio of various events.

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