You have the following information on Universe It Ts, Inc.: sales to working capital = 10 times, profit margin = 25 percent, net income available to common stockholders = $3 million, and current liabilities = $1 million. What is the firm's balance of current assets?
A) $1.075m
B) $1.2m
C) $2.2m
D) $5m

Question

Quizplus · Accepted Answer

The firm's net income is $3 million with a profit margin of 25%, meaning total sales are $12 million ($3 million / 0.25). With sales to working capital being 10 times, working capital (current assets - current liabilities) is $1.2 million ($12 million / 10). Given current liabilities of $1 million, current assets are $2.2 million ($1.2 million working capital + $1 million current liabilities).

You Have the Following Information on Universe It Ts, Inc