The Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. Christie's sales last year (all on credit) were $150,000, and it earned a net profit of 6%, or $9,000. It turned
over its inventory 7.5 times during the year, and its DSO was 36.5 days. Its annual
cost of goods sold was $121,667. The firm had fixed assets totaling $35,000. Christie's
payables deferral period is 40 days.
a. Calculate Christie's cash conversion cycle.
b. Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.
c. Suppose Christie's managers believe the annual inventory turnover can be raised to 9 times without affecting sales. What would Christie's cash conversion cycle,
total assets turnover, and ROA have been if the inventory turnover had been 9
for the year?