Recreational Supplies Co. has net sales of $9,191,375, an ROE of 31.02 percent, and a total asset turnover of 2.42 times. If the firm has a debt-to-equity ratio of 0.76, what is the company’s net income?
To find the company's net income, we need to use the formula for Return on Equity (ROE):
ROE = (Net Income / Average Shareholders' Equity) * 100
We also need the formula for Return on Assets (ROA), which is related to the Total Asset Turnover:
ROA = (Net Income / Average Total Assets) * 100
Since ROE is given as 31.02%, we can rearrange the formula to solve for the net income:
Net Income = (ROE / 100) * Average Shareholders' Equity
Similarly, we can rearrange the ROA formula to solve for the net income:
Net Income = (ROA / 100) * Average Total Assets
Now, we have two equations to find the net income using both ROE and ROA. To do this, we need to find the Average Shareholders' Equity and Average Total Assets.
To find the Average Total Assets, we can use the Total Asset Turnover formula:
Total Asset Turnover = Net Sales / Average Total Assets
By rearranging the formula, we can solve for the Average Total Assets:
Average Total Assets = Net Sales / Total Asset Turnover
Plugging in the given values, we get:
Average Total Assets = $9,191,375 / 2.42 = $3,798,190.08
Next, we need to find the Average Shareholders' Equity using the debt-to-equity ratio:
Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity
Since Debt-to-Equity Ratio is given as 0.76, we can rearrange the formula to solve for Shareholders' Equity:
Shareholders' Equity = Total Liabilities / Debt-to-Equity Ratio
To find the Shareholders' Equity, we need to know the total liabilities. Unfortunately, this information is not provided in the question. Without it, we cannot calculate the net income.
To find the net income, we would need more information, specifically the value of Total Liabilities or the Shareholders' Equity.
Therefore, we cannot determine the company's net income with the given information.