Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DS0) on its cash conversion cycle. Chastain's 2019 sales (all on credit) were $117,000, its cost of goods sold is 80% of sales, and it earned a net profit of 2%, or $2,340. It turned over its inventory 7 times during the year, and its DSO was 39.5 days. The firm had fixed assets totaling $37,000. Chastain's payables deferral period is 35 days. Assume 365 days in year for your calculations. a. Calculate Chastain's cash conversion cycle. Do not round intermediate calculations. Round your answer to two decimal places. days b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Do not round intermediate calculations. Round your answers to two decimal places. Total assets turnover: ROA: c. Suppose Chastain's managers believe that the inventory turnover can be raised to 9.3 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.3 for 2019? Do not round intermediate calculations. Round your answers to two decimal places. Cash conversion cycle: days Total assets turnover: ROA: %
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DS0) on its cash conversion cycle. Chastain's 2019 sales (all on credit) were $117,000, its cost of goods sold is 80% of sales, and it earned a net profit of 2%, or $2,340. It turned over its inventory 7 times during the year, and its DSO was 39.5 days. The firm had fixed assets totaling $37,000. Chastain's payables deferral period is 35 days. Assume 365 days in year for your calculations. a. Calculate Chastain's cash conversion cycle. Do not round intermediate calculations. Round your answer to two decimal places. days b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Do not round intermediate calculations. Round your answers to two decimal places. Total assets turnover: ROA: c. Suppose Chastain's managers believe that the inventory turnover can be raised to 9.3 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.3 for 2019? Do not round intermediate calculations. Round your answers to two decimal places. Cash conversion cycle: days Total assets turnover: ROA: %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:**Chastain Corporation Financial Analysis Exercise**
Chastain Corporation is assessing the impact of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Here is the financial information for Chastain in 2019:
- **Sales:** $117,000 (all on credit)
- **Cost of Goods Sold (COGS):** 80% of sales
- **Net Profit:** 2% or $2,340
- **Inventory Turnover:** 7 times per year
- **Days Sales Outstanding (DSO):** 39.5 days
- **Fixed Assets:** $37,000
- **Payables Deferral Period:** 35 days
For calculations, assume a 365-day year.
**Tasks:**
a. **Calculate Chastain's Cash Conversion Cycle**
- Do not round intermediate calculations.
- Round your answer to two decimal places.
**Answer**: _______ days
b. **Calculate Total Assets Turnover and Return on Assets (ROA)**
Assuming Chastain holds negligible cash and marketable securities:
- Do not round intermediate calculations.
- Round your answers to two decimal places.
**Total Assets Turnover**: _______
**ROA**: _______ %
c. **Impact of Increased Inventory Turnover**
If inventory turnover is increased to 9.3 times:
- Calculate changes in cash conversion cycle, total assets turnover, and ROA.
- Do not round intermediate calculations.
- Round your answers to two decimal places.
**Cash Conversion Cycle**: _______ days
**Total Assets Turnover**: _______
**ROA**: _______ %
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