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Dirk, Loan Officer
Category: Finance
Satisfied Customers: 29
Experience:  Mortgage Advisor. More than 30 years experience in residential mortgage financing.
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Philip Morris is excited because sales for his clothing ...

Customer Question

Philip Morris is excited because sales for his clothing company are expected to double from $500,000 to $100,000 next year. Philip notes that net assets will remain at 50 percent of sales. His clothing firm will enjoy a 9 percent return on total sales. He will start the year with $100,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take. Does his optimistic outlook for his cash position appear to be correct?
Submitted: 9 years ago.
Category: Finance
Expert:  Dirk replied 9 years ago.
First of all, I'm assuming that if the sales of $500,000 are doubling, they are going to $1,000,000. If the return on sales is 9%, that would total $90,000. If you add that to the $100,000 in the bank, then he might be able to afford two mercedes (depending on the make and model) and a European vacation. However, it might make a decent gouge in his bank account.