Problem 16-12 Working Capital Cash Flow Cycle Strickler Technology is considerin
ID: 2383792 • Letter: P
Question
Problem 16-12
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 $190,000 (all on credit), and it earned a net profit of 8%. Its inventory turnover was 4.8674 times during the year, and its DSO was 33 days. Its annual cost of goods sold was $121,685. The firm had fixed assets totaling $38,000. 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.
%
Please help!!
Explanation / Answer
Problem 16-12
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 $190,000 (all on credit), and it earned a net profit of 8%. Its inventory turnover was 4.8674 times during the year, and its DSO was 33 days. Its annual cost of goods sold was $121,685. The firm had fixed assets totaling $38,000. 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.
Strickler's cash conversion cycle = DSO + 365/inventory turnover - payables deferral period
Strickler's cash conversion cycle = 33 + 365/4.8674 - 30
Strickler's cash conversion cycle = 77.99 days
Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
Total assets turnover = sales/Average Assets
fixed assets = 38000
Inventory = cost of goods sold /inventory turnover
Inventory = 121685/4.8674
Inventory = 25000
Account Recievable = DSO/365 * Sales
Account Recievable = 33/365*190000
Account Recievable = 17178.08
Total Asset = 38000 + 25000+17178
Total Asset = 80178
Total assets turnover = 190000/80178
Total assets turnover = 2.37 times
Calculate its ROA. Round your answer to two decimal places.
ROA = Net profit% * Total assets turnover
ROA = 8%*2.37
ROA = 18.96%
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.
Strickler's cash conversion cycle = DSO + 365/inventory turnover - payables deferral period
Strickler's cash conversion cycle = 33 + 365/7 - 30
Strickler's cash conversion cycle = 55.14 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.
Total assets turnover = sales/Average Assets
fixed assets = 38000
Inventory = cost of goods sold /inventory turnover
Inventory = 121685/7
Inventory = 17383.57
Account Recievable = DSO/365 * Sales
Account Recievable = 33/365*190000
Account Recievable = 17178.08
Total Asset = 38000 + 17383.57+17178.08
Total Asset = 72561.65
Total assets turnover = 190000/72561.65
Total assets turnover = 2.62 times
What would Strickler's ROA have been if the inventory turnover had been 7 for the year? Round your answer to two decimal places.
ROA = Net profit% * Total assets turnover
ROA = 8%*2.62
ROA = 20.96%