Chastain Corporation is trying to determine the effect of itsinventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle.Chastain’s 2018 sales (all on credit) were $121,000, its cost of goods sold is 80% of sales, andit earned a net profit of 2%, or $2,420. It turned over its inventory 7 times during the year,and its DSO was 37 days. The firm had fixed assets totaling $42,000. Chastain’s payablesdeferral period is 35 days.a. Calculate Chastain’s cash conversion cycle.b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculateits total assets turnover and ROA. c. Suppose Chastain’s managers believe that the inventory turnover can be raised to 9.9times. What would Chastain’s cash conversion cycle, total assets turnover, and ROAhave been if the inventory turnover had been 9.9 for 2018?
Chastain Corporation is trying to determine the effect of its
inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle.
Chastain’s 2018 sales (all on credit) were $121,000, its cost of goods sold is 80% of sales, and
it earned a net profit of 2%, or $2,420. It turned over its inventory 7 times during the year,
and its DSO was 37 days. The firm had fixed assets totaling $42,000. Chastain’s payables
deferral period is 35 days.
a. Calculate Chastain’s cash conversion cycle.
b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate
its total assets turnover and
c. Suppose Chastain’s managers believe that the inventory turnover can be raised to 9.9
times. What would Chastain’s cash conversion cycle, total assets turnover, and ROA
have been if the inventory turnover had been 9.9 for 2018?
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