CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

You are given the following information about a company: Sales of $1.2 million, Payables payment period of 60 days, Cost of goods sold equals 70% of sales. What is the company's average trade payables, using a 365-day year?
A. $14,000
B. $200,000
C. $138,082
Explanation: COGS = (.7)($1,200,000) = $840,000
365 days/60 days per payment period = 6.08 for the payables turnover ratio
$840,000/6.08 = $138,082.2

User Contributed Comments 3

User Comment
Shelton what's the explanation for numerators in
Rcvs.t/o=Sales/Rcvs,
Ivt.t/o=COGS/Ivt,
Payables.t/o=COGS/Payables?
vinnybozz Num Days Payable
= 365/Payable Turnover
= 365/(COGS/Avg Payable)
= 365 * Avg Payable / COGS
<=>
Avg Payable = Num Days Payable * COGS/365
= 60 * (1.2M * .7) / 365
= $138,082
SmartPrakash U Turn the Payables 6.08 times with respect to COGS. To turn each time it costs 138,082
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