Question

le Home Insert Page Layout Formulas Data Review View Assignment 3-4 Worksheet - Excel Tell me what you want to do... Developer Arial * Cut Copy Format Painter - 10 - Α Α Wrap Text ite General B T U SA Merge & Center - $ - % 09 Clipboard Font Alignment Conditional Format as Cell Formatting Table Styles Styles га Number 0 А C D F G H 1 K L M N 0 B E Assignment 3.4 Exercises Problem 6: Calculating Average Payables Period 5 Points Saxhorn, Inc., had a Cost of Goods Sold of $138,572 last year. At the end of the year, the Accounts Payable balance was $32,681 a) How long on average did it take the company to pay its suppliers (what is the Payables Period)? b) What might a large value for this ratio imply? Create your Original Solution Below - Be sure to show all calculations and clearly indicate answers. 8 9 0

saxhorn inc had a cost of goods sold of $138,572 last year. at the end of the year, accounts payable balance was $32681
a how long on average did it take the company to pay its suppliers (what is the payables period)?
b what might a large value for this ratio imply?

Answer 1

a) Payable days outstanding = Average payables/ Cost of goods sold * 365 days

$32,681/ $138,572 * 365 days = 86.1 days

b) The larger value for this ratio implies lower working capital requirement since the accounts payable balance is reduced from current assets. The higher the days payable outstanding it is good for the firm since it will reduce financing cost for working capital. It will also reduce the net operating cycle period.