Holooly Plus Logo
Holooly Plus Logo

Question 3.2: Here is a variation on the receivables collection period. Ho...

Here is a variation on the receivables collection period. How long, on average, does it take for Prufrock Corporation to pay its bills? To answer, we need to calculate the accounts payable turnover rate using cost of goods sold. We will assume that Prufrock purchases everything on credit.

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

The cost of goods sold is $1,344, and accounts payable are $344. The turnover is therefore $1,344/$344 = 3.91 times. So, payables turned over about every 365/3.91 = 94 days. On average, then, Prufrock takes 94 days to pay. As a potential creditor, we might take note of this fact.

Related Answered Questions

Question: 3.5

Take a look at the most recent numbers reported for Cost of Sales/Inventory and EBIT/ Interest in Table 3.13. What are the overall median values? What are these ratios? ...

Verified Answer:

If you look back at our discussion, you will see t...
Question: 3.S-TP.1

Sources and Uses of Cash Consider the following balance sheets for the Philippe Corporation. Calculate the changes in the various accounts and, where applicable, identify the change as a source or use of cash. What were the major sources and uses of cash? Did the company become more or less liquid ...

Verified Answer:

We’ve filled in the answers in the following table...
Question: 3.S-TP.3

Financial Ratios Based on the balance sheets and income statement in the previous two problems, calculate the following ratios for 2018: ...

Verified Answer:

We’ve calculated the following ratios based on the...
Question: 3.S-TP.2

Common-Size Statements Here is the most recent income statement for Philippe. Prepare a common-size income statement based on this information. How do you interpret the standardized net income? What percentage of sales goes to cost of goods sold? ...

Verified Answer:

We’ve calculated the common-size income statement ...
Question: 3.S-TP.4

ROE and the DuPont Identity Calculate the 2018 ROE for the Philippe Corporation and then break down your answer into its component parts using the DuPont identity. ...

Verified Answer:

The return on equity is the ratio of net income to...
Question: 3.4

Because ROE and ROA are usually intended to measure performance over a prior period, it makes a certain amount of sense to base them on average equity and average assets, respectively. For Prufrock, how would you calculate these? ...

Verified Answer:

We first need to calculate average assets and aver...
Question: 3.3

Suppose you find that a particular company generates $.40 in sales for every dollar in total assets. How often does this company turn over its total assets? ...

Verified Answer:

The total asset turnover here is .40 times per yea...
Question: 3.1

Suppose a firm pays off some of its suppliers and short-term creditors. What happens to the current ratio? Suppose a firm buys some inventory. What happens in this case? What happens if a firm sells some merchandise? ...

Verified Answer:

The first case is a trick question. What happens i...