areez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days. Required: Calculate Mareez Pharma cash conversion cycle. Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI. Would you accept your finance manager recommendations? Why or why not?
areez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days. Required: Calculate Mareez Pharma cash conversion cycle. Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI. Would you accept your finance manager recommendations? Why or why not?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter21: Supply Chains And Working Capital Management
Section: Chapter Questions
Problem 12P: Strickler Technology is considering changes in its working capital policies to improve its cash flow...
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Mareez Pharma is trying to determine the effect of its inventory and receivable turnover ratios on its cash flow cycle. Mareez Pharma sales last year (all on credit) were $ 5,000,000, and its net profit was 10%. Its inventory turnover was 6.0 times during the year, and its average collection period was 40 days. Its annual cost of goods sold was $3,800,000. The firm had fixed assets totaling $1,500,000. Mareez Pharma payables deferral period is 50 days.
Required:
- Calculate Mareez Pharma cash conversion cycle.
- Assuming Mareez Pharma holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.
- Suppose you have been recently hired by Mareez Pharma as CFO. Your finance manager who was expecting to be promoted as CFO has recommended you that it is possible to change annual inventory turnover to 9.5 times without affecting the sales. You know that management is keenly watching: cash conversion cycle, total assets turnover and ROA as your KPI. Would you accept your finance manager recommendations? Why or why not?
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