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Torrid Romance Publishers has total receivables of $3,160, which represents 20 days’ sales. Total assets are $73,000. The firm’s operating profit margin is 6.0%. Find the firm's ROA and asset turnover ratio. (Use 365 days in a year. Do not round intermediate calculations. Round the asset turnover ratio to 2 decimal places. Enter the ROA as a percent rounded to 2 decimal places.)

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Answer:

4.74%

Explanation:

Data provided in the question:

Total receivables = $3,160

Day's sales in receivables = 20

Total assets = $73,000

Operating profit margin = 6.0%

Now,

Total sales = Total receivables × [365 ÷ Day's sales in receivables ]

= 3,160 × [ 365 ÷ 20 ]

= $57,670

Assets turnover ratio = Total sales ÷ Total assets

= $57,670 ÷ $73,000

= 0.79

Therefore,

ROA = Assets Turnover ratio × Profit margin

= 0.79 × 6.0%

= 4.74%

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