question 1a. Working Capital Cash Flow Cycle Strickler Technology is considering
ID: 2383810 • Letter: Q
Question
question 1a.
Working Capital Cash Flow Cycle
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $120,000 (all on credit), and it earned a net profit of 7%. Its inventory turnover was 4.8588 times during the year, and its DSO was 35 days. Its annual cost of goods sold was $121,470. The firm had fixed assets totaling $30,000. Strickler's payables deferral period is 30 days. Assume 365 days in year for your calculations. Do not round intermediate calculations.
i) Calculate Strickler's cash conversion cycle. Round your answer to two decimal places.
days
ii) Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
x
iii) Calculate its ROA. Round your answer to two decimal places.
%
iv) Suppose Strickler's managers believe that the inventory turnover can be raised to 7 times without affecting sales and cost of goods sold. What would Strickler's cash conversion cycle have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
days
v) What would Strickler's total assets turnover have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
x
vi) What would Strickler's ROA have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
%
Explanation / Answer
Calculate Strickler's cash conversion cycle. Round your answer to two decimal places. Days
Days inventory outstanding = 365/Inventory Turnover Ratio 365/4.8588 =75.12
Cash Conversion Cycle = Days Inventory Outstanding Dso – Payables Deferral =75.12-30
Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
Inventory = COGS/Inventory Turnover Ratio 121,470/4.8588 =25000
Total Assets = Fixed Asset + Inventory =25000+30000=55000
Total Asset Turnover = = Sales / Total Assets =120,000/55000 =2.18
Calculate its ROA
Net Income = Net Profit Margin * Sales =120000*.07 =8400
ROA = Net Income/Total Asset=s 8400/55000 =15.27
Suppose Strickler's managers believe that the inventory turnover can be raised to 7 times without affecting sales and cost of goods sold. What would Strickler's cash conversion cycle have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
days
Days inventory outstanding = 365/Inventory Turnover Ratio 365/7 =52.14
Cash Conversion Cycle = Days Inventory Outstanding Dso – Payables Deferral =52.14-30 =22.14
What would Strickler's total assets turnover have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
Inventory = COGS/Inventory Turnover Ratio 121,470/7 =25000
Total Assets = Fixed Asset + Inventory =17353+30000=47353
Total Asset Turnover = = Sales / Total Assets =120,000/47353 =2.53
What would Strickler's ROA have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
Net Income = Net Profit Margin * Sales =120000*.07 =8400
ROA = Net Income/Total Asset=s 8400/47353 =17.74 %
Calculate Strickler's cash conversion cycle. Round your answer to two decimal places. Days
Days inventory outstanding = 365/Inventory Turnover Ratio 365/4.8588 =75.12
Cash Conversion Cycle = Days Inventory Outstanding Dso – Payables Deferral =75.12-30
Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
Inventory = COGS/Inventory Turnover Ratio 121,470/4.8588 =25000
Total Assets = Fixed Asset + Inventory =25000+30000=55000
Total Asset Turnover = = Sales / Total Assets =120,000/55000 =2.18
Calculate its ROA
Net Income = Net Profit Margin * Sales =120000*.07 =8400
ROA = Net Income/Total Asset=s 8400/55000 =15.27
Suppose Strickler's managers believe that the inventory turnover can be raised to 7 times without affecting sales and cost of goods sold. What would Strickler's cash conversion cycle have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
days
Days inventory outstanding = 365/Inventory Turnover Ratio 365/7 =52.14
Cash Conversion Cycle = Days Inventory Outstanding Dso – Payables Deferral =52.14-30 =22.14
What would Strickler's total assets turnover have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
Inventory = COGS/Inventory Turnover Ratio 121,470/7 =25000
Total Assets = Fixed Asset + Inventory =17353+30000=47353
Total Asset Turnover = = Sales / Total Assets =120,000/47353 =2.53
What would Strickler's ROA have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
Net Income = Net Profit Margin * Sales =120000*.07 =8400
ROA = Net Income/Total Asset=s 8400/47353 =17.74 %
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