Cash conversion cycle Christie Corporation is trying to determine the effect of

Question

Cash conversion cycle

Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Christie's 2012 sales (all on credit) were $162,000; its cost of goods sold is 80% of sales; and it earned a net profit of 3%, or $4,860. It turned over its inventory 5 times during the year, and its DSO was 37 days. The firm had fixed assets totaling $46,000. Christie's payables deferral period is 40 days. Assume 365 days in year for your calculations.

Calculate Christie's cash conversion cycle. Round your answer to two decimal places.
  days

Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answer to two decimal places.

Suppose Christie's managers believe that the inventory turnover can be raised to 9.2 times. What would Christie's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.2 for 2012?

Explanation / Answer

Cost of Goods Sold 80% of sales 129600 Days Sales in Inventory (365/5) 73 Cash conversion cycle: No of day Days sales outstanding 37 Days Inventory outstanding 73 Total 110 Less:Payables outstanding 40 Cash Conversion cycle 70.00 Inventory Value (129600/5) 25920.00 Add: Fixed Assets 46000.00 Total Assets 71920.00 ROA (4860/71920) 6.76% If inventory turnover can be improved to 9.2: Days Sales in Inventory (365/9.2) 39.67 Cash conversion cycle: No of day Days sales outstanding 37 Days Inventory outstanding 39.67 Total 76.67391304 Less:Payables outstanding 40 Cash Conversion cycle 36.67 Inventory Value (129600/5) 25920.00 Add: Fixed Assets 46000.00 Total Assets 71920.00 ROA (4860/71920) 6.76%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.