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