Mareez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days. Required:Calculate Mareez Pharma cash conversion cycle.Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI. Would you accept your finance manager recommendations? Why or why not?(solve in excel)

Cash Conversion cycle is the number of times cash is circulated in the cycle of receivables, payable…

Answered: areez Pharma is trying to determine the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mareez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days.

Required:

Calculate Mareez Pharma cash conversion cycle.
Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.
Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI. Would you accept your finance manager recommendations? Why or why not?

(solve in excel)

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