Practice problems for reading 46 (page 128 vol 4, CFA)

problems, beginning, difference, reading, purchase

Hey guys, please look at the questions 2 and 3. They have beginning and ending inventory, COGS.
However, in the book calculation, inventory turnover has only ending inventory instead of using the average inventory in the denominator.
The amount of purchase in payable turnover is calculated by adding COGS to ending inventory rather the difference in inventory balance.
They got wrong or i am?

joehogue

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发表于 2013-4-17 17:41 | 只看该作者

Hello,
yes, they are using the ending inventory. The ratios are just looking at specific points in time. You can’t judge anything solely on the basis of the ratio. You must compare it with some benchmark which can be either the ratios of peer companies, the industry or the historical values of the company itself.
In case of payables turnover you calculate purchases as:
Purchases = Ending inventory Beginning inventory + Cost of goods sold
which is I think clear. Purchases are simply indicated over time, it is impossible (or makes no sense) to calculate purchases at a point in time.
Is that what you wanted to know?

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Practice problems for reading 46 (page 128 vol 4, CFA)

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