Question 7: The Angus Flag (AF) wants to determine the effect of its inventory turnover and days sales outstanding (DSO) on its cash flow cycle. Last year, AFs sales (all on credit) were $468,000, and it had a net profit margin of 8%. The cost of goods sold is 60% of sales. Inventory was turned over 12 times during the year, and the DSO was 42 days. The company had negligible amounts of cash and marketable securities, and its fixed assets were $150,000. AFs payables deferral period is 35 days.

a. Calculate AFs cash conversion cycle.

b.Calculate its total assets turnover and return on assets (ROA).

Question 8: Pinkish Penguin is concerned about its cash management. On average, the days sales in inventory (duration of inventory on shelf) DSI is 80 days. Accounts receivables are collected in 80 days, while accounts payable are paid in 60 days. Pinkish Penguin has annual sales of $15 million, COGS of $10 million and purchases of $4.5 million.

a. What is PPs operating cycle (OC)?

b. What is PP cash conversion cycle (CCC)?

c. What is the amount of resources needed to support PPs cash conversion cycle?

d. If PP was able sell its entire inventory in 70 days, faster than 80 days, how much of the resources invested are saved?

b. Calculate its total assets turnover and return on assets (ROA).