Question

Assume a firm has a cash cycle of 82 days and an operating cycle of 145 days.

What is its payables turnover? (Use 365 days a year. Round your answer to 2 decimal places.)

Payables turnover _____ times

Answer 1

The payables turnover is approximately 5.79 times per year when a firm has a cash cycle of 82 days and an operating cycle of 145 days.

Step-by-step explanation:

To calculate the payables turnover we must understand the relationship between the cash cycle, the operating cycle, and the payable deferral period. The cash cycle is a component of the operating cycle which is reduced by the payables deferral period. If a firm has a cash cycle of 82 days and an operating cycle of 145 days, we can deduce the payables deferral period, which is the length of time the company is able to delay its payments to suppliers.

The cash cycle is derived from subtracting the payables deferral period from the operating cycle:
Operating Cycle - Payables Deferral Period = Cash Cycle
145 days - Payables Deferral Period = 82 days
Payables Deferral Period = 145 days - 82 days = 63 days

Using the payables deferral period, the payables turnover can be calculated by taking 365 days (a year) divided by the payables deferral period in days:
Payables Turnover = 365 / Payables Deferral Period
Payables Turnover = 365 / 63
Payables Turnover = approximately 5.79 times per year.