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 $289,000; its cost of goods sold is 80% of sales; and it earned a net profit of 7%, or $20,230. It turned over its inventory 4 times during the year, and its DSO was 34.5 days. The firm had fixed assets totaling $49,000. Christie's payables deferral period is 45 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?

Total assets $   ROA %

Explanation / Answer

Answer 1

Answer 2

Inventory Turnover = 9.2

Total Assets

DSO=(Account Receivable/Sales)*365 DIO=(Inventory/Cost of Sales)*365 Sales 289000 Cost of goods sold 80% of sales 231200 Other Expenses 13% 37570 Net Income 7% 20230 Inventory Turnover 4 Times DSO 34.5days Fixed Assets 49000 Payable Deferral Period 45days Calculate Cash Conversion Cycle Cash conversion cycle=days inventory outstanding+days sales outstanding- days payable outstanding Particulars days days inventory outstanding : 365/4 91.25 days sales outstanding 34.5 payable deferred period 45 Cash Conversion cycle (days) 170.75 total assets turnover Sales/Total Assets Fixed Assets 49000 Inventory (91.25*231200)/365 57800 Account receivable (34.5*289000)/365 27316 Cash & Marketable security 0 Total Assets 134116 Asset Turnover :289000/134116 2.154851 ROA= Net Income/Total Assets (20230/134116 15.08391

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