The Wei Corporation expects next year's net income to be $15 million. The firm's debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler sales last year were $3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 9.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was $1,895,000.
The firm had fixed assets totaling $535,000. Strickler’s payables deferral period is 45 days.
Calculate Strickler’s cash conversion cycle.
b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.
c. Suppose Strickler’s managers believe the annual inventory turnover can be raised to 12 times without affecting sales. What would Strickler’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 12 for the year?