The FMT Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash flow cycle. FMT sales last year (all on credit) were ₱150,000, and it earned a net profit of 6%, or ₱9,000. It turned over its inventory 5 times during the year, and its DSO was 36.5 days. The firm had fixed assets totalling ₱35,000. FMT payables deferral period is 40 days. a. Calculate FMT’s cash conversion cycle. b. Assuming FMT holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose FMT Corp managers believe that the inventory turnover can be raised to 7.3 times. What would FMT’s cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 7.3 for the year?
The FMT Corporation is trying to determine the effect of its inventory turnover ratio and days sales
outstanding (DSO) on its cash flow cycle. FMT sales last year (all on credit) were ₱150,000, and it earned
a net profit of 6%, or ₱9,000. It turned over its inventory 5 times during the year, and its DSO was 36.5
days. The firm had fixed assets totalling ₱35,000. FMT payables deferral period is 40 days.
a. Calculate FMT’s cash conversion cycle.
b. Assuming FMT holds negligible amounts of cash and marketable securities, calculate its total
assets turnover and ROA.
c. Suppose FMT Corp managers believe that the inventory turnover can be raised to 7.3 times.
What would FMT’s cash conversion cycle, total assets turnover, and ROA have been if the
inventory turnover had been 7.3 for the year?
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