Question

2h 21: End-of-Chapter Problems - Supply Chains and Working Capital Management ох Back to Assignment Attempts: 2 Keep the Highest: 2/6 5. Problem 21-12 (Working Capital Cash Flow Cycle) eBook H Problem Walk-Through Working Capital Cash Flow Cycle Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricker's sales last year were $2,540,000 (all on credit), and its net profit margin was 6%. Its inventory turnover was 5 times during the year, and its so was 31 days. Its annual cost of goods sold was $1,500,000. The firm had fixed assets totaling $465,000. Strickler's payables deferral period is 34 days. Assume a 365-day year. Do not round intermediate calculations. a. Calculate Strickler'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 decimal places. Total assets turnover: ROA: c. Suppose Strickler's managers believe the annual inventory turnover can be raised to 8 times without affecting sale or profit margins. What would Strickler's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been for the year? Round your answers to two decimal places. Cash conversion cycle: days Total assets turnover: ROA: Cowg

Answer 1

Answer a.

Days Sales Outstanding = 31 days

Days Inventory Outstanding = 365 / Inventory Turnover
Days Inventory Outstanding = 365 / 5
Days Inventory Outstanding = 73 days

Payable Deferral Period = 34 days

Cash Conversion Cycle = Days Sales Outstanding + Days Inventory Outstanding - Payable Deferral Period
Cash Conversion Cycle = 31 + 73 - 34
Cash Conversion Cycle = 70 days

Answer b.

Days Sales Outstanding = 365 * Accounts Receivable / Sales
31 = 365 * Accounts Receivable / $2,540,000
Accounts Receivable = $215,726.03

Inventory Turnover = Cost of Goods Sold / Inventory
5 = $1,500,000 / Inventory
Inventory = $300,000

Total Assets = Accounts Receivable + Inventory + Fixed Assets
Total Assets = $215,726.03 + $300,000 + $465,000
Total Assets = $980,726.03

Net Income = Sales * Profit Margin
Net Income = $2,540,000 * 6%
Net Income = $152,400

Total Assets Turnover = Sales / Total Assets
Total Assets Turnover = $2,540,000 / $980,726.03
Total Assets Turnover = 2.59 times

Return on Assets = Net Income / Total Assets
Return on Assets = $152,400 / $980,726.03
Return on Assets = 15.54%

Answer c.

Days Sales Outstanding = 31 days

Days Inventory Outstanding = 365 / Inventory Turnover
Days Inventory Outstanding = 365 / 8
Days Inventory Outstanding = 45.63 days

Payable Deferral Period = 34 days

Cash Conversion Cycle = Days Sales Outstanding + Days Inventory Outstanding - Payable Deferral Period
Cash Conversion Cycle = 31 + 45.63 - 34
Cash Conversion Cycle = 42.63 days

Inventory Turnover = Cost of Goods Sold / Inventory
8 = $1,500,000 / Inventory
Inventory = $187,500

Total Assets = Accounts Receivable + Inventory + Fixed Assets
Total Assets = $215,726.03 + $187,500 + $465,000
Total Assets = $868,226.03

Total Assets Turnover = Sales / Total Assets
Total Assets Turnover = $2,540,000 / $868,226.03
Total Assets Turnover = 2.93 times

Return on Assets = Net Income / Total Assets
Return on Assets = $152,400 / $868,226.03
Return on Assets = 17.55%