Working Capital Cash Flow Cycle Strickler Technology is considering changes in i

Question

Working Capital Cash Flow Cycle

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $120,000 (all on credit), and it earned a net profit of 7%. Its inventory turnover was 4.8588 times during the year, and its DSO was 35 days. Its annual cost of goods sold was $121,470. The firm had fixed assets totaling $30,000. Strickler's payables deferral period is 30 days. Assume 365 days in year for your calculations. Do not round intermediate calculations.

Calculate Strickler's cash conversion cycle. Round your answer to two decimal places.
     days

Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
     x
Calculate its ROA. Round your answer to two decimal places.
     %

Suppose Strickler's managers believe that the inventory turnover can be raised to 7 times without affecting sales and cost of goods sold. What would Strickler's cash conversion cycle have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
     days
What would Strickler's total assets turnover have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
     x
What would Strickler's ROA have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
     %

Explanation / Answer

Value of Inventory = 120000/4.8588 24697.46 Fixed Assets 30000 Total Assets 54697.46 Days Inventory holding = 365/4.8588 75.12 Days Days Sales outstanding 35 Days Total 110.12 Days Less: Accounts Payable cycles 30 Days Cash Conversion cycles 80.12 Days Assets Turnover = Sales / Fixed assets 4 Net Profit @7% on 120,000 8400 ROA = 8400/54,697.46 15.36% if inventory turnover increase 7 times, Days Inventory = 365/7 = 52.14 days Days Inventory = 365/7 52.14 Days Days Sales outstanding 35 Days Total 87.14 Days Less: Accounts Payable cycles 30 Days Cash Conversion cycles 57.14 Days Value of Inventory = 120000/7 = 17,142.86 17142.86 Fixed Assets 30000 Total Assets 47142.86 ROA = 8400/47,142.86 17.82%

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