If a firm has a cash cycle of 38 days and an operating cycle of 82 days, what is its payables turnover?
A) 8.79x
B) 8.30x
C) 9.53x
D) 10.89x

Question

Quizplus · Accepted Answer

Payables turnover = Cost of goods sold / Accounts payable

Operating cycle = Inventory conversion period + Accounts receivable collection period

Cash cycle = Operating cycle - Accounts payable payment period

We can calculate the accounts payable payment period as:

Accounts payable payment period = Operating cycle - Cash cycle
= 82 - 38
= 44 days

Now, we can calculate the payables turnover as:

Payables turnover = Cost of goods sold / Accounts payable
= (365 / Cash conversion cycle) * Cost of goods sold / Accounts payable
= (365 / 44) * Cost of goods sold / Accounts payable
= 8.30

Therefore, the answer is B.

If a Firm Has a Cash Cycle of 38 Days