Cash conversion cycle Christie Corporation is trying to determine the effect of
ID: 2711436 • Letter: C
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 $179,000; its cost of goods sold is 80% of sales; and it earned a net profit of 7%, or $12,530. It turned over its inventory 6 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling $49,000. Christie's payables deferral period is 35 days. Assume 365 days in year for your calculations.
Calculate Christie's cash conversion cycle. Round your answer to two decimal places.
days
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 $179,000; its cost of goods sold is 80% of sales; and it earned a net profit of 7%, or $12,530. It turned over its inventory 6 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling $49,000. Christie's payables deferral period is 35 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.
Total assets $ ROA %
Suppose Christie's managers believe that the inventory turnover can be raised to 8.2 times. What would Christie's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.2 for 2012?
Cash conversion cycle days Total assets $ ROA %
Explanation / Answer
Cash conversion cycle = DSO + 365/inventory turnover - payables deferral period = 36.5 +365/6 - 35 = 62.33 days
total asset turnover = sales/ total assets = 179000/(fixed assets + inventory + accounts receivables)
inventory = COGS/inventory turnover = 179000*0.8/6 = 23866.66
accounts receivables = DSO * sales /365 = 36.5 * 179000/365 = 17900
total asset turnover = 179000/( 23866.66 +49000 + 17900) = 1.97
ROA = (earnings)/total assets = 12530/( 23866.66 +49000 + 17900) = 13.80%
if inventory turnover = 8.2
Cash conversion cycle = DSO + 365/inventory turnover - payables deferral period = 36.5 +365/8.2 - 35 = 46 days
total asset turnover = sales/ total assets = 179000/(fixed assets + inventory + account receivables)
inventory = COGS/inventory turnover = 179000*0.8/8.2 = 17463.409
total asset turnover = 179000/( 17463.409 +49000 + 17900) = 2.12
ROA = (earnings)/total assets = 12530/( 17463.409+49000 + 17900) = 14.85%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.