A company has the following ratios:

Current ratio - .85 Inventory to Sales Conversion Period 180 days Sales to Cash Conversion Period 40 days Purchases to Payments Conversion Period - 7 days The accountant also reports that the gross profit margin is 15% and the next profit margin is 3%.

The company also has a bank line of credit that allows the company to borrow any shortfall it might have in cash. Interest on the loan is 10%. Assume the loan remained constant throughout the year.

The company has $1,000,000 of equity and $120,000 in retained earnings at the end of the year.

Sales in the most recent year were $2,500,000.

Ignore income tax for purposes of this problem.

Question: Based on all of the above information, will this company have a good return on equity or a poor return on equity?

Build a balance sheet and income statement financial model to prove your answer.

The assets for the balance sheet can be found by utilizing the ratios given.