Google Answers Logo
View Question
Q: Financial Management - Sales Volume Problem ( Answered 5 out of 5 stars,   0 Comments )
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.
Subject: Re: Financial Management - Sales Volume Problem
Answered By: elmarto-ga on 12 Sep 2005 06:26 PDT
Rated:5 out of 5 stars
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!
pelaod-ga rated this answer:5 out of 5 stars
Excellent your answer was very helpful more than I expected. Thank you very much.

There are no comments at this time.

Important Disclaimer: Answers and comments provided on Google Answers are general information, and are not intended to substitute for informed professional medical, psychiatric, psychological, tax, legal, investment, accounting, or other professional advice. Google does not endorse, and expressly disclaims liability for any product, manufacturer, distributor, service or service provider mentioned or any opinion expressed in answers or comments. Please read carefully the Google Answers Terms of Service.

If you feel that you have found inappropriate content, please let us know by emailing us at with the question ID listed above. Thank you.
Search Google Answers for
Google Answers  

Google Home - Answers FAQ - Terms of Service - Privacy Policy