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QUESTIONS

1) A company has a 75% gross profit margin, cost of sales of 40,000 and receivables

turnover of 60 days !hat is the value of the company"s accounts receivable#

$) f a company reports profit of &00, after charging depreciation of $00, '( e*penseof +00, and an impairment loss of 100, and if accounts receivable increase by 100,

accounts payable decrease by $00, and inventory decreases by 50, hat is operating

cash flo#

-) A company has a 75% gross profit margin, inventory of 500 and inventory turnover of

-65 days !hat is the company"s revenue#

4) f a company reports profit of 600, after charging depreciation of 400, advertising

e*pense of 1,$00, stoc. compensation e*pense of $00 and a goodill impairment loss

of 100, and if accounts payable increase by 100, hat is operating cash flo#

5) A company has a $0% operating profit margin, 70% gross profit margin, inventory of

1$,000 and inventory turnover of 45 days !hat is the value of the company"s

operating e*penses /e*cluding cost of sales)#

6) At its current level of output, a company ith revenue of 1,000 has a $0% operating

profit margin and a 60% gross profit margin f cost of sales is variable and all other

operating e*penses are fi*ed, hat is operating leverage if revenue increases to $,000#

7) f a company reports profit of $,000, after charging depreciation of 500, '( e*pense

of 1,$00, and an impairment loss of 400, and if accounts receivable increase by 100,

hat is operating cash flo#

+) A company has a 75% gross profit margin, gross profit of 1$,000, and accounts

receivable of 1,500 !hat is the company"s accounts receivable turnover#

&) A company has a 75% gross profit margin, revenue of 1$,000, and inventory of 500

!hat is the company"s inventory turnover#

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ANSWERS

1) A company has a 75% gross profit margin, cost of sales of 40,000 and receivables

turnover of 60 days !hat is the value of the company"s accounts receivable#

If gross margin is 75% and cost of sales 40,000, revenue = revenue = 160,000(AR/revenue!"65 = 60 da#s, so AR = $6,"01

$) f a company reports profit of &00, after charging depreciation of $00, '( e*pense

of +00, and an impairment loss of 100, and if accounts receivable increase by 100,

accounts payable decrease by $00, and inventory decreases by 50, hat is operating

cash flo#

&rofit '00

e)reciation $00

Im)airment 100

Increase accounts receiva*le (100ecrease accounts )a#a*le ($00

ecrease inventor# 50

+)erating cas flo- '50

-) A company has a 75% gross profit margin, inventory of 500 and inventory turnover of

-65 days !hat is the company"s revenue#

Inventor#/cost of sales = "65 da#s, so cost of sales = 5000

If gross margin is 75%, cost of sales/revenue = $5%, so revenue = $0000

4) f a company reports profit of 600, after charging depreciation of 400, advertising

e*pense of 1,$00, stoc. compensation e*pense of $00 and a goodill impairment loss

of 100, and if accounts payable increase by 100, hat is operating cash flo#

&rofit 600

Add *ac. noncas e)enses

e)reciation 400

toc. com)ensation $002ood-ill im)airment 100

Increase accounts )a#a*le 100

+)erating cas flo- 1400

5) A company has a $0% operating profit margin, 70% gross profit margin, inventory of

1$,000 and inventory turnover of 45 days !hat is the value of the company"s

operating e*penses /e*cluding cost of sales)#

%Revenue 100

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3ost of sales "0

2ross )rofit 70

+)erating e)enses 50

+)erating )rofit $0

Inventor#/cost of sales = 45 da#s, so cost of sales = '7"""o, o)erating e)enses = '7""" ! 50/"0 = 16$$$$

6) At its current level of output, a company ith revenue of 1,000 has a $0% operating

profit margin and a 60% gross profit margin f cost of sales is variable and all other

operating e*penses are fi*ed, hat is operating leverage if revenue increases to $,000#

Revenue 1000 $000

3ost of sales 400 00

2ross )rofit 600 1$00

+)erating e)enses 400 400+)erating )rofit $00 00

+)erating leverage = fied cost/total cost = ""%

7) f a company reports profit of $,000, after charging depreciation of 500, '( e*pense

of 1,$00, and an impairment loss of 400, and if accounts receivable increase by 100,

hat is operating cash flo#

rofit plus noncash e*penses 2 $,000 3 500 3 400 2 $,&00

ess increase in receivables of 100 2 operating cash flo of $,+00

+) A company has a 75% gross profit margin, gross profit of 1$,000, and accounts

receivable of 1,500 !hat is the company"s accounts receivable turnover#

ales 2 gross profitmargin 2 1$,00075% 2 16,000

A' turnover 2 /receivablessales)-65 days 2 -4$ days

&) A company has a 75% gross profit margin, revenue of 1$,000, and inventory of 500

!hat is the company"s inventory turnover#

8ost of sales 2 revenue 9 gross profit 2 -,000

nventory turnover 2 /inventorycost of sales)-65 days 2 61 days /$ months)