Excel Online Structured Activity: Cash conversion cycle credit) were $281000; it
ID: 1170089 • Letter: E
Question
Excel Online Structured Activity: Cash conversion cycle credit) were $281000; itscost of goods sold is 80% of sales; and it earned days. The firm had fixed assets totaling $35000. Chastain's payables deferr Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. ls trying to determine the effect of ts inventory turnover ratio and days sales outstanding (0SO) on its cash conversion cyde. Chastain's 2016 sales al on of2%, or $5620. It turned over its inventory 6 times during the year, and its DSO was 35 al period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the anet profit eadsheet a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. days e its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations. Total assets turnover ROAExplanation / Answer
(a)Chastain’s Cash Conversion Cycle = 50.83 Days
Inventory Conversion Period = 365 Days / Inventory turnover ratio
= 365 Days / 6
= 60.83 Days
Average Collection Period = DSO = 35 Days
Cash Conversion Cycle = Inventory Conversion Period + Average Collection Period - Payables Deferral Period
= 60.83 Days + 35 Days - 45 Days
= 50.83 Days
(b)Total Asset Turnover and ROA
Total Asset Turnover
2.83 Times
ROA
5.65%
Working
Inventory = Cost of goods sold / Inventory conversion period
= [ $281,000 x 80% ] / 6 Times
= $37,467
Accounts receivable = [Sales / 365 Days] × Average collection period
= [ $281,000 / 365 ] x 35
= $26,945
Total assets = Inventory + Accounts receivable + Fixed assets
= $37,467 + 26,945 + 35,000
= $99,412
Total asset turnover = [ Sales / Total assets ]
= $281000 / 99,412
= 2.8266 Times
= 2.83 Times [ Rounded ]
ROA = Net profit / Total assets = [ $5,620 / 281,000 ] x 100 = 5.65% or
ROA = Profit margin × Total asset turnover = 2% x 2.8266 = 5.65%
Total Asset Turnover
2.83 Times
ROA
5.65%
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