Question

22 NCENGAGE NDTAP Q Search this course Ch 21: End-of-Chapter Problems-Supply Chains and Working Capital Management eBook Problem Walk-Through Working Capital Cash Flow Cycle A-A Strickler Technology is considering changes in its working capital policies to improve its cash low cycle. Strickder's sales last year were $2,555,000 (all on credit), and its net profit margin was 7 %. Its inventory turnover was 4.5 times during the year, and its DSO was 34 days. Its annual cost of goods sold was $1,350,000. The firm had fixed assets totaling $405,000. Strickler's payables deferral period is 37 days. Assume a 365-day year. Do not round intermediate calculations. a. Calculate Strickder's cash conversion cycle. Round your answer to two decimal places. days b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two ss decimal places. Total assets turnover:1 er ROA: OR YOU c. Suppose Strickder's managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Strickler's cash conversion cvcle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year? Round your answers to two decimal places Cash converslon cycle: days Total assets turnover Evidence ROA 1055 4 2/11/2019 TOSHIBA NS wON BACK NUM

Answer 1

(a) Cash Conversion = Cycle & DIOT DSO-DPO 81:11 + 34- 31 = 78:11] DIO = DSO = DRO = Days Inventory outstanding Days Sales outstanding Days Payable outstanding = 34 days o 37 days Days doiventory outstanding = Inventory Cost of Goods x 365 = X 365 sold 814 3,00000 1,350,000 Inventory Turnover Ratio & cous Average Inventory 4.5 = 1350.000 Average Inventory Average Inventory - 300,000

Total Assets Turnover = Net Average sales Total Assets 2.555.000 40 5.oost 300,000 3.62 ROA - Net Ang Income Total Assets 7% of 2555,000 405,000 + 300,000 10:25

(c) af Inventory Turnover becomes 9 times Inventory Turnover Goods Sold Inventory Ratio - Cost of Average 135oooo. Ave. Inventory 150.000 Aug Inventory Days Inventory outstanding Inventory Cost of Goods Sold 365 150,000 x 365 1,350,000 40.55 Cash Conversion Cycle = DIO+ DSO-DPO = 40.55+34-37= 37.55

Total Assets Turnover = Net Sales Anorage Total Assets 2,555,000 905.000 € 150.000 ROA = Net Avg Income Total Assets 77 of 2,555.000 405, ooof 150,000 10.32