Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Christie's 2011 sales (all on credit) were $150,000; its cost of goods sold is 80% of sales; and its earned a net profit of 6%, or $9,000. It turned over its inventory 6 times during the year, and its DOS was 36.5 days. The firm had fixed assets totaling $35,000. Chirstie'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 asset turnover and ROA.
c. Suppose Christie's managers believe that the inventory turnover can be raised to 9.0 times. What would Christie's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.0 for 2011? Show all calculations