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. www 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 managerwho 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 а. b. с. 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

give excel solution

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
managerwho 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
а.
b.
с.
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?
Transcribed Image Text: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 managerwho 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 а. b. с. 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?
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education