Question

Based on the following information about Company X, which is true?

A/P Turnover: 20
Total Asset Turnover: 3.10
Days Payable Outstanding: 19
Times Interest Earned: 12
Debt/Equity: 1.4

A Company X pays bills in 19 days
B Company X has more equity than debt
C Company X pays bills in 20 days
D Company X pays interest in 12 days
E Company X generates $3.10 in profit per dollar invested in assets

Answer 1

A. Company X pay bills in 19 days

Step-by-step explanation:

Days Payable Outstanding indicates that the average payables are 19 days old. It is calculated by dividing the credit purchases by the average payables.

The other options are not valid due to following:

B: Company X has more equity than debt, this is negated by the Debt/ Equity ratio is 1.4 which indicates that the debt is 140 % ties of equity.

C: The Company pays bills in 20 days. It is negated by the Days payable outstanding which is 19.

D: Company pays interest in 12 days, is invalid as the Times Interest Earned indicates that the Company is earning 12 times its interest costs.

E: Company generates $ 3.10 in profit per dollar invested in assets is also not valid .