The christie corporation is trying to determine the effect of its
ROA have been if inventory had been 9 for the year?
Calculations:
Cash conversion cycle= Inventory turnover ratio x DSO – Payables deferral period
= 7.5 times x 36.5 days – 40 days
= 80.25 days
Total assets turnover= Sales/Average total assets
= $150,000 / ($35,000+$35,000)/ 2 (average total assets)
= 8.57 times
ROA=Net income/ Average total assets
= $9,000/$35,000 (average total assets) 0.26 or 26%
Cash conversion cycle= Inventory turnover ratio x DSO – Payables deferral period
= 7.5 times x 36.5 days – 40 days
= 80.25 days
Total assets turnover= Sales/Average total assets
= $150,000 / ($35,000+$35,000)/ 2 (average total assets)
= 8.57 times
ROA=Net income/ Average total assets
= $9,000/$35,000 (average total assets) 0.26 or 26%
If the inventory turn were 9 times: Cash Conversion Cycle would be 92.5 days; Total Assets Turnover would be 10 and ROA 32%.
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