Cash Conversion Cycle: Using COGS or Purchases for Payables Turnover?

CFA Level I
#1

I have noticed that in practice questions, sometimes the calculation for Payables Turnover will use COGS as the numerator, but at other times use Purchases instead. For example, the official answer for a certain question used COGS for Inventory Turnover even though Beginning & Ending Inventory was provided in the question.

Is there some sort of general rule to follow for the calculation of Payables Turnover, when it comes to using COGS or Purchases?

Many thanks.

#2

You might find the below link heplful:

http://www.analystforum.com/forums/cfa-forums/cfa-level-i-forum/9654462

#3

Great, thank you!!!

#4

Accountants sometimes use COGS in the numerator, and sometimes use Purchases in the numerator. The 2016 Level I CFA curriculum uses Purchases.

I don’t normally contradict cpk, but in the thread linked above, he’s wrong.

#5

I’ve been using random questions that I find on the Internet so the answers are probably outdated. Thank you!!

So if I’m not given Purchases, but given COGS, Ending Inventory and Beginning Inventory, I should calculate Purchases and use that instead?

#6

Officially: yes.

#7

Thank you S2000! :slight_smile:

#8

You’re welcome.