# Strickler Technology is considering changes in its working capital policies to improve its cash...

## Question:

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle.

1. Strickler's sales last year were $190,000 (all on credit), and it earned a net profit of 6%. 2. Its inventory turnover was 9.5 times during the year, and its DSO was 37.5 days. 3. Its annual cost of goods sold was$121,122.

4. The firm had fixed assets totaling \$34,000.

5. Strickler's payables deferral period is 45 days. Assume 365 days in year for your calculations.

(Do not round intermediate calculations.)

A. Calculate Strickler's cash conversion cycle.

days

B. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover.

C. Calculate its ROA.

D. Suppose Strickler's managers believe that the inventory turnover can be raised to 9 times without affecting sales and cost of goods sold.

i. What would Strickler's cash conversion cycle have been, if the inventory turnover had been 9 for the year?

ii. What would Strickler's total assets turnover have been if the inventory turnover had been 9 for the year?

iii. What would Strickler's ROA have been, if the inventory turnover had been 9 for the year?

## Profit margin

Profit margin is said to be a profitability ratio that intimates the profit an organization is generating from its sales. It is computed by dividing the net income of the organization from total sales. The profit margin can be increased by decreasing the costs.

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Calculating Strickler's cash conversion cycle

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Chapter 17 / Lesson 2
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How can a business owner know how long it takes to make money on purchased supplies or products? In this lesson, we'll examine the two different methods for calculating the length of time it takes to make a profit: the operating cycle and the cash conversion cycle.