CFA Practice Question

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CFA Practice Question

The following data applies to XTC Company:

Sales = $1,000,000
Receivable = $260,000
Net Income = $50,000
COGS = $800,000
Total Assets = $800,000
Payables = $600,000
Debt/Equity = 200%
Inventory = $400,000

What is the average collection period, the average inventory processing period, and the payables payment period, respectively, for XTC Company?
Correct Answer: Average Collection Period: 96; Average Inventory Processing Period: 183; Payables Payments Period: 274 days

Receivables turnover = $1,000,000/$260,000 = 3.840 Average collection period = 365/3.840 = 95.05 or 95 days
Inventory turnover = $800,000/$400,000 = 2 Average Inventory Processing Period = 365/2 = 183 days
Payables turnover ratio = $800,000/$600,000 = 1.333 Payables payment period = 365/1.333 = 273.82 or 274 days

User Contributed Comments 14

User Comment
Alastair 1,000,000/260,000 = 3.85 ACP = 95 days
haarlemmer 95.05 means 96 days not 95!
cwrolfe ACP=365/(1,000,000/260,000)=94.9 -> 95 days
Do the math without rounding the receivables turnover.
tanyak 95.05 does not mean means still 95
xcye for those XX days ratios, you can only round up.
NillePet Btw, not important for the calc but anyways: If you have total assets of 800, a D/E-ratio of 2, and payables of 600, how can that relate to each other?

- Shouldn't there be double the amount of debt then equity? Hence, equity would be 300 - totaling Equity and Debt to 900 compared to 800 of assets....
Emily1119 Why we don"t need to calculate average inventory and use 400,000 inventory directly?
johntan1979 Can someone tell me why the numerator for payables turnover ratio is total assets = $800,000?

I thought the formula given is Purchases, which is COGS + Ending Inventory - Beginning Inventory, divided by Avg Payables?
niemeljason Why don't we take the avg for receivables,inventories and payables in the calculation of the metrics?
gill15 Johntan...It's Purchases in the Numerator --- since the BI and EI are the samee....Purchases = COGS

thats how I did...
Yrazzaq88 I'm assuming that if you are not given the prior year figures, then there is no way you can calculate the average "receivables" or "inventory" or "Payable"...

Therefore, don't think about it too much and proceed to calculate with the given figures!

Don't think too much or you will waste precious minutes at the CFA exam.
ashish100 dayumnnnnnnn. i got all of dem right.. lets gooo patriots!!!
ashish100 and i'm tired and tipsy.. what a beautiful thing this world is
Ewan2015 How on earth are we meant to be able to tell that Receivables refers to average receivables payables refers to average payables and inventory refers to average inventory?
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