Payables turn over should

wildrose

why is it COGS/avg. payables in the CFA mock??? should it be purchases/ avg. payables

scr879

For some reason they present operating cycle elements differently depending on the context.

Under financial reporting and analysis, payables and receivables turnover use COGS and revenue respectively.

Under corporate finance, they use purchases and credit sales.

I would just use whatever information is explicitly provided. For example, if they give you credit sales then use credit sales.

Siddimaula

ok but you can calculate purchase if you have ending inv., beg. inv., and COGs? so which one is it :S

RobertA

If you have sufficient information then you must use purchases in the formula. Else use COGS.

pogo

wrong. if you look at the CFA mock exam afternoon question #64... they use COGS as the numerator for the payables turnover.


They have sufficient info to calculate purchases but choose to use COGS?

ogoluwa

I haven't seen that particular question babycakes, however I'd be glad to take a look if you can post it here.

However, I can not believe CFAI would put that much ambiguity into an MCQ.

The correct approach is still to use purchases and credit sales when give. Otherwise we make an assumption that COGS= Purchases and Sales=Credit Sales.

draz

I think it depends on the industry.

If you are talking about a book store, using COGS would be very bad because it would just include inventory problems in your liquidity ratios. The book store is just a reseller and its suppliers are only the people who provide the product that the sell. For APT, use purchases.

If you are talking about Intel, COGS might matter more because the product the company sells has lots of value added. For the sake of argument, assume that Intel creates computer chips from copper ore and sand. Its purchases are likely to be small and not very relevant to its liquidity. However, the COGS includes all the electricity, labor, and all the other costs that go from turning essentially free raw materials into computer chips. Since all these other costs need to be paid (and thus are part of accounts payable), it would make sense to use COGS.

In any event, there will not be a problem on the exam in which COGS and purchases are given to you and one answer is COGS/accounts payable and the other is purchases/accounts payable. I promise.

And babycakes, be nicer to butt. And butt, get a new screen name.