a)
To determine: Cash conversion cycle of Company S.
a)
Explanation of Solution
Given information:
Last year sales were $3,250,000,
Net profit margin is 7%,
Inventory turnover ratio is 6 times during the year,
DSO of company is 41 days,
Cost of goods sold (COGS) is $1,800,000,
Fixed assets $535,000,
Payables deferral payment period is 45 days.
Calculation of inventory and inventory conversion period:
Therefore inventory is $300,000 and inventory conversion period is 60.8333
Calculation of length of cash conversion cycle:
Hence, length of cash conversion cycle is 56.8 days.
b)
To determine: Total assets turnover ratio and
b)
Explanation of Solution
Calculation of total assets:
Hence, total assets of company are $1,200,068.49
Calculation of assets turnover ratio:
Hence assets turnover is 2.7082 times
Calculation of ROA:
Therefore, return on assets is 18.96%
c)
To determine: Cash conversion cycle, total assets turnover and ROA if inventory turnover had been 9 for the current year.
c)
Explanation of Solution
Calculation of inventory:
Therefore, inventory is $20,000
Calculation of inventory conversion period:
Therefore,
Cash conversion cycle is 36.6 days.
Hence, total assets of company are $1,100,068.49
Calculation of assets turnover ratio:
Hence assets turnover is 2.9544 times
Calculation of ROA:
Therefore, return on assets is 20.68%
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Chapter 16 Solutions
Financial Management: Theory & Practice
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