Woodward sales, Inc. comparative income statements and balance sheets show the f

Question

Woodward sales, Inc. comparative income statements and balance sheets show the following selected information for 2013 and 2014 1.Calculate the company's account payable turnover and days payable outstanding (DPO) for 2013 and 2014 2. On the basis of this compute alone, has the company liquidity improved or deteriorated for 2014? Cost of goods sold 2014 $2,750,000 2013 $2,900,000 End of inventory 2014 $900,000 2013 $700,000 Beginning Inventory 2014 $700,000 2013 $600,000 Average Account Payable 2014 305,000 2013 $270,000

Explanation / Answer

Accounts Payable turnover = Purchases/(Beginning accounts payable + Ending accounts payable) / 2
COGS + closing Inventory - opening Inventory = Purchases
2014 = ($2,750,000 + $900,000 - $700,000)/305,000 = 9.67
2013 = $2,900,000+ $700,000 -$600,000 /270,000 = 11.11

days payable outstanding (DPO) = 365/ Accounts Payable Turnover
2014 = 365/9.67 = 37.75or 38 days
2015 = 365/11.11 = 32.85 or 33 days

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