The Christie Corporation is trying to determine the effect ofits inventory turno
ID: 2770708 • Letter: T
Question
The Christie Corporation is trying to determine the effect ofits inventory turnover ratio and days sales outstanding (DSO) onits cash flow cycle. Christie’s 2005 sales (all on credit)were $150,000, and it earned a net profit of 6 percent, or $9,000.It turned over its inventory 6 times during the year, and its DSOwas 36.5 days. The firm had fixed assets totaling $35,000.Christie’s payable deferral period is 40 days.
a. Calculate Christie’s cashconversion cycle.
b. Assuming Christie holds negligibleamounts of cash and marketable securities, calculate its totalassets turnover and ROA.
c. Suppose Christie’s managersbelieve that the inventory turnover can be raised to 7.3 times.What would Christie’s cash conversion cycle, total assetsturnover, and ROA have been if the inventory turnover had been 7.3for 2005?
Explanation / Answer
The Christie Corporation is trying to determine the effect ofits inventory turno