Problem 16-12 Working Capital Cash Flow Cycle Strickler Technology is considerin
ID: 2726725 • 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 6%. Its inventory turnover was 9.5 times during the year, and its DSO was 37.5 days. Its annual cost of goods sold was $121,122. The firm had fixed assets totaling $34,000. Strickler's payables deferral period is 45 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 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 ROA have been if the inventory turnover had been 9 for the year? Round your answer to two decimal places.
%
Explanation / Answer
Sales $190,000 Cost of Goods Sold $121,122 Net Profit(Sales*6%) $11,400 Inventory Turnover 9.5 No of Days in Yr 365 DebtorS Days 37.5 Credit Days 45 Fixed asset $34,000 1 Cash Conversion cycle Inventory Turnover Sales/Avg Stock 9.5 190000/Avg Stock Avg Stock 190000/9.5 Avg Stock 20000 Stock Days Stock/Sales*365 20000/190000*365 Stock Days 38.42105263 Cash Conversion cycle Debtor Days + Stock Days - Creditor Days 37.5+38.42-45 Cash Conversion cycle 30.92 Days 2 Debtors Sales/365*Debtors Days Debtors $19,520.55 Avg Stock 20000 Fixed asset 34000 Asset Turnover Ratio Sales/Total Asset 190000/(34000+20000+19520.55) 2.584311461 Times ROA Net Profit/Total assets ROA 15.51% 3 If Inventory Turnover is 9 Inventory Turnover Sales/Avg Stock 9 190000/Avg Stock Avg Stock 190000/9 Avg Stock 21111.11111 Stock Days Stock/Sales*365 21111.11/190000*365 Stock Days 40.55555342 Cash Conversion cycle Debtor Days + Stock Days - Creditor Days 37.5+40.55-45 Cash Conversion cycle 33.05 Days 4 Debtors Sales/365*Debtors Days Debtors $19,520.55 Avg Stock 21111.11111 Fixed asset 34000 Asset Turnover Ratio Sales/Total Asset 190000/(34000+21111.11+19520.55) Asset Turnover Ratio 2.545836445 Times 5 ROA Net Profit/Total assets ROA 15.28%