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 6%. Its inventory turnover was 4.8 times during the year, and its DSO was 45 days. Its annual cost of goods sold was $121,665. The firm had fixed assets totaling $32,000. Strickler?s payables deferral period is 40 days. Assume 365 days in year for your calculations. 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. Round your answer to two decimal places. % Calculate its ROA. Round your answer to two decimal places. % c. Suppose Strickler?s managers believe that the inventory turnover can be raised to 9 times without affecting sales and cost of goods sold. What would Strickler?s cash conversion cycle have been if the inventory turnover had been 9 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 9 for the year? Round your answer to two decimal places. x What would Strickler?s RCA have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places. %

Explanation / Answer

a) Inventory days = 365 / 4.8 = 76.04

Cash conversion cycle = 45 + 76.04 - 40 = 81.04 days

b) Receivables = 120000 * 45 / 365 = 14794.52

Stock = 121665 / 4.8 = 25346.88

Total assets = 14794.52 + 25346.88 + 32000 = 72141.40

Asset turnover = 120000 / 72141.40 = 1.66

ROA = 120000*.06 / 72141.40 = 9.98%

c) Inventory days = 121665 / 9 = 13518.33

Asset turnover = 120000 / (14794.52 + 13518.33 + 32000) = 1.99

ROA = 120000*.06 / (14794.52 + 13518.33 + 32000) = 11.94%

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.