The Christie Corporation is trying to determine the effect of

The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. Christie’s sales last year (all on credit) were $150,000, and it earned a net profit of 6 percent, or $9,000. It turned over its inventory 5 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling $35,000. Christie’s payables deferral period is 40 days.

a. Calculate Christie’s cash conversion cycle.

b. Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.

c. Suppose Christie’s managers believe that the inventory turnover can be raised to 7.3 times. What would Christie’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 7.3 for the year?

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally.    Inventory Turnover Ratio FormulaWhere,...
Cash Conversion Cycle
Cash conversion cycle measures the total time a business takes to convert its cash on hand to produce, pay its suppliers, sell to its customers and collect cash from its customers. The process starts with purchasing of raw materials from suppliers,...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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