Apex, Inc. has total receivables of $3,000, which represent 20 days?
sales. Average total assets are $75,000. The firm?s profit margin is 5
percent. Find the firm?s sales-to assets ratio and return on assets.

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Clarification of Question by mrna-ga on 19 Oct 2005 09:52 PDT

Please provide a step by step explanation of how to solve this problem
and the formulae used.

mrna,

I'll start from the end and work backwards...
Sales to assets is just that: ratio of -=annual=- sales to the average
assets over the same year. Return on assets is the ratio of the firms
profit to the average assets over the same year. Since

Profit = Sales * ProfitMargin, 

the whole question is about finding the Sales.
The only way to find sales from the data you presented is by extrapolation.
First, acknowledge the sales that are already booked in the previous
quarter(s). Then, add your extrapolated sales figure for as many more
quarters as you need to fill the year. If it's the beginning of
Apex'es fiscal year, you'll have to extrapolate to the whole year

Sales = SalesBooked + $3,000 / 20 * DaysLeft

Imagine that you are in the beginning of the last quarter and the
sales booked in the previous 3 quarters total $27,000. You know the
firm generates on average $3,000 / 20 = $150 per day in revenue. You
know there are about 65 working days left in the quarter (or more, if
it's an around-the-clock outfit). So,

Sales = $27,000 + $150 * 65 = $36,750

Profit = 5% * $36,750 = $1,837.5

S-to-A = $36,750 / $75,000 = 0.49

ROA = $1,837.5 / $75,000 = 2.45%

Of course, if you have to extrapolate the whole year from only 20 days
of sales, you might run into troubles because those 20 days might not
be your average days representative of the year to come. But, with the
numbers you gave me, I think there is no other way to solve it.

FlyingHippo