As an intern at Crescent Corporation, you are asked to evaluate the company’s cash flow cycle....

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As an intern at Crescent Corporation, you are asked to evaluate the company’s cash flow cycle....

As an intern at Crescent Corporation, you are asked to evaluate the company’s cash flow cycle. The company’s annual sales were $250,000 with a net profit margin of 8% and fixed asset turnover ratio of 4 times. The company’s inventory turnover ratio, based on sales figure, was 7. The company collected its receivables in 28 days on average while its payables deferral period extended 35 days. (Hint: Use Sales/Inventories as the Inventory Turnover measure whenever necessary in the following questions).

part b and c

Question b of problem:

You are then asked to compute Crescent’s total asset turnover and return on assets assuming that the company’s cash holding is negligible.

Question c of problem:

Finally, you are asked to analyze the impact of an increase on company’s inventory turnover ratio on its cash cycle. Specifically, what would happen to Crescent’s cash cycle, total asset turnover, and return on assets if the company can bring to its ITO to industry average of 9?

business accounting

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Answer 1

Answer #1

Solution b) Total assets turnover Turnover Total asset 250000 2.182735 114535.2 Net profit Total assets 20000 17.46% 114535.2 Return on assets Working : Fixed assets Turnover = turnover Fixed assets Fixed assets- 250000 62500 4 Inventory Turnover = Cost of goods sold Inventories Inventories 23000032857.14 7

Net profit margin X Sales 8% x 250000 20000 Net Profit- cost of goods sold = Sales minus profit Receivable turnover rati 365 average collection period 13.03571429 Sales Recevable turnover 13.03571 Assuming cash is negligible. Hence not included in total assets

Solution d) Total assets turnover Turnover Total asset 250000 2.846004 87842.47 Net profit Total assets 20000 22.77% 87842.47 Return on assets Inventory turnover ratio 365 40.55556 Invetory- Turnover 6164.384 Inventory turnover ratio Cash Cycle Recevables cycle+inventory cycle- payable cycle 28+9-35 2 days while in solution (b) cash cycle was zero.

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Answer 2

As an intern at Crescent Corporation, you are asked to evaluate the company’s cash flow cycle....

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