Torrid Romance Publishers has total receivables of $3,180, which represents 20 days' sales

Finance Aug 08, 2020

Torrid Romance Publishers has total receivables of $3,180, which represents 20 days' sales. Total assets are $77,380. The firm's operating profit margin is 6.2%. Find the firm's ROA and asset turnover

ratio. (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Expert Solution

Computation of the asset turnover ratio:-

Days sales outstanding = (Accounts receivables / Sales) * Days in a year

20 = ($3,180 / Sales) * 365

Sales = 365 * $3,180 / 20

= $58,035

Asset turnover ratio = Sales / Total assets

= $58,035 / $77,380

= 0.75 times

Computation of the ROA:-

ROA = Asset turnover ratio * Operating profit margin

= 0.75 * 6.2%

= 4.65%

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