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Q: Financial Management - Sales Volume Problem ( Answered ,   0 Comments )
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 Subject: Financial Management - Sales Volume Problem Category: Business and Money > Finance Asked by: pelaod-ga List Price: \$10.00 Posted: 11 Sep 2005 19:46 PDT Expires: 11 Oct 2005 19:46 PDT Question ID: 566973
 ```I'm in a Financial Management class and I haven't been able to answer this question. New York Life Insurance has a current ratio of 3.10, a quick ratio of 2.20, and an inventory turnover ratio of 7.10. New York Life Insurance has a Total assets of \$14,370,900 and its debt is 28 percent. New York Life Insurance has no long-term debt. What is the sales figure for New York Life Insurance if the total cost of good sold is 70% of sales? I know the anwers is\$36,732,020. However I would like to have some instruccion on how to get that result. I been using the Dupont Chart to solve this problem.Is that ok? well I hope someone can help me. thanks```
 ```Hi pelaod! The best way to solve this problem would be to "fill in the blanks" in the balance sheet of this firm using the information given to you through the ratios. Let's see what information you have: Current Ratio = Current Assets / Current Liabilities = 3.1 Quick Ratio = (Current Assets - Inventories) / Curr. Liabilities = 2.2 Invent. Turnover Ratio = Cost Of Goods Sold / Inventory = 7.1 Debt ratio = Total Debt / Total Assets = 0.28 Cost of Goods Sold = 0.7 * Sales Long Term Debt = 0 Total Assets = \$14,370,900 Now, notice that you can plug the value of Total Assets into the Debt Ratio in order to get the Total Debt. So we have: Total Debt = 0.28 * 14,3730,900 = \$4,023,852 Since long-term debt is zero, then we have that (assuming that all liabilities are "debts"): Short-term debt = Current Liabilities = \$4,023,852 Checking the information you have, notice that you can use the Current Liabilities value and the Current Ratio in order to calculate the Current Assets: Current Assets = 3.1 * Current Liabilities = \$12,473,941.20 Now, given that we know the value of the Current Assets and Current Liabilities, we can use the Quick Ratio to find the value of Inventories. This one is a bit "trickier" than the previous one, but it's quite simple nevertheless: Current Assets - Inventories = 2.2 * Current Liabilities 12,473,941.20 - Inventories = 2.2 * 4,023,852 12,473,941.20 - Inventories = 8,852,474.40 Inventories = 12,473,941.20 - 8,852,474.40 Inventories = \$3,621,466.80 We can now use the Inventories figure in order to find the Cost Of Goods Sold (CGS) figure, using the Inventory Turnover Ratio: CGS = 7.1 * Inventories = \$25,712,414.28 And, at long last, using the CGS and the fact that CGS reprents 70% of Sales, we can find the Sales figure: CGS = 0.7 * Sales 25,712,414.28 = 0.7 * Sales Sales = 25,712,414.28/0.7 Sales = \$36,732,020.40 which matches the answer you supplied. I hope this helps! If you have any questions regarding my answer, please don't hesitate to request a clarification. Otherwise I await your rating and final comments. Best wishes! elmarto```
 pelaod-ga rated this answer: `Excellent your answer was very helpful more than I expected. Thank you very much.`