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 $145,000; its cost of goods sold is 80% of sales; and it earned a net profit of 8%, or $11,600. It turned over its inventory 6 times during the year, and its DSO was 34.5 days. The firm had fixed assets totaling $33,000. Christie's payables deferral period is 35 days. Assume 365 days in year for your calculations.

C.) Suppose Christie's managers believe that the inventory turnover can be raised to 9.7 times. What would Christie's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.7 for 2012?

Cash conversion cycle _______days

Total assets $ _____

ROA _______%

Explanation / Answer

Cash conversion cycle = 37.63+ 34.5 - 40 = 32.13days

Inventory = Sles / Inv.turn over = $145,000/9.7= $14948.45

Total assets = Inventory + Receivables + Fixed assets

                 = $14948.45+ $11,600+ $33,000 = $59548.45

Total assets turnover = $145,000/$59548.45= 2.43´.

ROA = $11,600/ 59548.45= 19.47%.

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