Christie Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Christies 2015 sales (all on credit) were $150,000; its cost of goods sold is 80% of sales; and it earned a net profit of 6%, or $9,000. It turned over its inventory 6 times during the year, and its DSO was 36.5 days. The firm had fixed assets totaling $35,000. Christies payables deferral period is 40 Days.
a. Calculate Christies cash conversion cycle.
b. assuming Christie holds negligible amounts of cash and marketable securities, calculate its total asset turnover and ROA.
c. suppose Christies managers believe that the inventory turnover can be raised to 9.0 times. What would Christies cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9.0 for 2015?
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