Question

CASH CONVERSION CYCLE Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $240,000; its cost of goods sold is 80% of sales; and it earned a net profit of 2%, or $4,800. It turned over its inventory 5 times during the year, and its DSO was 31.5 days. The firm had fixed assets totaling $40,000. Chastain's payables deferral period is 40 days. Assume 365 days in year for your calculations. a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. days b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations. Total assets turnover ROA % c. Suppose Chastain's managers believe that the inventory turnover can be raised to 9.7 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.7 for 2016? Round your answers to two decimal places. Do not round intermediate calculations. days Cash conversion cycle Total assets turnover ROA

Answer 1

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ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Σ AutoSum : A Fill 2 Clear Sort & Filter Editing Find & Select Calibri E Copy Paste Format Painter BI Clipboard BY751 - BN BO 732 -11AA = = = Dr Wrap Text General U D- DA SF Merge Merge & Center - Center $ % % , 4:0 .00 :.: Conditional Format Cell Insert Delete Format Formatting as Table Styles Font Alignment Number Styles Cells for BP BQ BR BS BT BU B V BW BX BY INVENTORY = SALES/INVENTORY TURNOVER = 240000/5 = 48000.00 INVENTORY CONVERSION PERIOD = 365 DAYS X INVENTORY/COGS = 365 X 48000/(240000 X 80%) = AVERAGE COLLECTION PERIOD = 365 DAYS X ACCOUNTS RECEIVABLE/SALES = PAYABLES DEFERAL PERIOD = 365 DAYS X ACCOUNTS PAYABLE/COGS = BZ CA CB 733 734 91.25 31.5 40 735 736 (a) CASH CONVERSION CYCLE = INVENTORY CONVERSION PERIOD + ACCOUNTS RECEIVABLE PERIOD - ACCOUNTS PAYABLE PERIOD CASH CONVERSION CYCLE = 91.25 + 31.5 - 40 = 82.75 DAYS 737 738 739 740 (b) TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS TOTAL ASSETS = FIXED ASSETS + CURRENT ASSETS 741 742 743 744 745 746 747 ACCOUNTS RECEIVABLES = AVERAGE COLLECTION PERIOD = 365 DAYS X ACCOUNTS RECEIVABLE/SALES = 31.5= 365 X ACCOUNTS RECEIVABLE/240000 AVERAGE RECEIVABLES = 20712.33 INVENTORY (AS CALCULATED ABOVE) 48000.00 748 749 750 TOTAL ASSETS = FIXED ASSETS + ACCOUNTS RECEIVABLES + INVENTORY TOTAL ASSETS = 40000 + 20712.33 + 48000 = 108712.33 751 752 ► Rea FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: 569 DIFF ANALYSIS ovel BOI 120% - 2. 9 * O ENG 24-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr General -11AA = = = B- A Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill Z Sort & U SF 4:0 .00 . Insert Delete Format $ -% % Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Find & Select Font Alignment Cells for BP BQ BR BS BT BU B V BW BX BY B Z CA CB 5 Calibri E Copy Paste Format Painter B I Clipboard BY772 - BN BO 753 754 755 756 757 758 759 760 761 TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS = 240000/108712.33 = 2.21 NET INCOME = 4800.00 ROA = NET INCOME/ TOTAL ASSETS = 4800/108712.33 = 4.42% (c) INVENTORY = SALES/INVENTORY TURNOVER = 240000/9.7 = 24742.27 INVENTORY CONVERSION PERIOD = 365 DAYS X INVENTORY/COGS = 365 X 24742.27/(240000 X 80%) = AVERAGE COLLECTION PERIOD = 365 DAYS X ACCOUNTS RECEIVABLE/SALES = PAYABLES DEFERAL PERIOD = 365 DAYS X ACCOUNTS PAYABLE/COGS = 762 47.04 31.5 40 CASH CONVERSION CYCLE = INVENTORY CONVERSION PERIOD + ACCOUNTS RECEIVABLE PERIOD - ACCOUNTS PAYABLE PERIOD CASH CONVERSION CYCLE = 47.04 + 31.5 - 40 = 38.54 DAYS 763 764 765 766 767 768 769 770 771 772 773 H Rea TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS TOTAL ASSETS = FIXED ASSETS + CURRENT ASSETS AVERAGE RECEIVABLES [ AS CALCULATED ABOVE]= INVENTORY (AS CALCULATED ABOVE] 20712.33 24742.27 TOTAL ASSETS = FIXED ASSETS + ACCOUNTS RECEIVABLES + INVENTORY 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss FIFO budget SALES BUDGET dupont CASH BUDGET ferences: 569 DIFF ANALYSIS ovel BOJ 120% 2. B 19 . * ENG 24-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr General Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill Z Sort & SF 4:0 .00 . Insert Delete Format $ -% % Number Conditional Format Formatting as Table Styles Cell Styles -11AA = = = U B- A Font fax BP BQ BR BS 2 Clear Find & Select Filter Editing Alignment Cells BT BU B V B W B X BY BZ CA CB 5 Calibri E Copy Paste Format Painter B I Clipboard BY767 BN BO 767 768 769 770 771 772 773 774 775 TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS TOTAL ASSETS = FIXED ASSETS + CURRENT ASSETS AVERAGE RECEIVABLES [ AS CALCULATED ABOVE]= INVENTORY (AS CALCULATED ABOVE] 20712.33 24742.27 TOTAL ASSETS = FIXED ASSETS + ACCOUNTS RECEIVABLES + INVENTORY TOTAL ASSETS = 40000 + 20712.33 + 24742.27 = 85454.60 TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS = 240000/85454.60 = 2.81 776 777 NET INCOME = ROA = NET INCOME/ TOTAL ASSETS = 4800.00 4800/85454.60 = 5.62% 778 779 780 781 782 783 784 785 786 787 H Rea FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: 569 DIFF ANALYSIS ovel BO! 120% 0-_ + D O 9 ...ll * 410 ENG * Tu e 24-11-2019