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 2016 sales (all on credit) were $204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places.
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 2016 sales (all on credit) were $204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in year for your calculations. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations. b. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter5: Sales And Receivables
Section: Chapter Questions
Problem 57BE
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Transcribed Image Text:Problem No. 1 Cash Conversion Cycle
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 2016 sales (all on credit) were
$204000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $10200. It
turned over its inventory 5 times during the year, and its DSO was 35.5 days. The firm had fixed
assets totaling $50000. Chastain's payables deferral period is 45 days. Assume 365 days in
year for your calculations. The data has been collected in the Microsoft Excel Online file below.
Open the spreadsheet and perform the required analysis to answer the questions below.
a. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places.
Do not round intermediate calculations.
b. Assuming Chastain holds negligible amounts of cash and marketable securities,
calculate its total assets turnover and ROA. Round your answers to two decimal places.
Do not round intermediate calculations.
c. Suppose Chastain's managers believe that the inventory turnover can be raised to 8.1
times. What would Chastain's cash conversion cycle, total assets turnover, and ROA
have been if the inventory turnover had been 8.1 for 2016? Round your answers to two
decimal places. Do not round intermediate calculations.
Transcribed Image Text:1 Cash conversion cycle
2
3
Sales
4 Cost of good sold%
5 Net profit margin
6
7
8
3
10
Original Inventory turnover ratio
DSO
Fixed assets
Payables deferral period
11 Calculate inventory conversion period:
12 Inventory
13 Inventory conversion period (days)
14
15
16
17
18
Calculate cash conversion cycle:
Cash conversion cycle (daya)
13 Accounts receivable
20 Total apot
21 Total assets turnover
22
Calculate total assets turnover:
31 Inventory conversion period (days)
32
$204,000
80.00%
5.00%
5
35.5
$50,000
45
23 Calculate return on assets:
24 Not income
25 Return on appeto (ROA)
26
27 Revised inventory turnover ratio
28
23 Calculate inventory conversion period:
30 Inventory
33
34 Cash conversion cycle (days)
35
36 Calculate total assets turnover:
37 Accounts receivable
38 Total assets
39
40
41
Calculate cash conversion cycle:
Total appeto turnover
B
Calculate return on assets:
42 Not income
43 Return on at (ROA)
44
45
8.1
с
D
E
F
G
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