Question ID#: 2798 The following data applies to the XTC Company: * Sales = $1,000,000 * Receivable = $260,000 * Net Income = $50,000 * COGS = $800,000 * Total Assets = $800,000 * Payables = $600,000 * Debt/Equity = 200% * Inventory = $400,000 What is the payables payment period for XTC Company? A)231 days B)132 days C)274 days Question 10280 One disadvantage of using the price/sales (P/S) multiple for stock valuation is that: A) profit margins are not stable over time. B) profit margins are not consistent across firms within an industry. C) sales are relatively stable and might not change even though earnings and value might change significantly. D) P/S multiple does not provide a framework to evaluate the effects of corporate policy decisions and price changes.
Q1: payables/COGS*365 = 274 days. Q2: A-C are advantages, so D should be the answer.
Thanks for the reply. Q1: I thought payables payment period = purchases / Avg payables. Is that incorrect and do we use COGS instead? Q2: A and C are advantages? They are disadvantages!
Anyone who could explain me these please…
What are the correct answers?
C and C… Why not A for the second question
> A) profit margins are not stable over time. That’s a disadvantage of this measure, which is the reason you want to use P/S. That is, if profit margin is not stable, it does not give you a good measure to rely on. Also, a P/E is not useful when you are dealing with companies that have zero or negative earnings, so you go for P/S.
note that the P/S is not a perfect ratio and can, too, be manipulated. Thus, the Street also likes the EV/EBITDA and P/cash flow metrics
d & d
It is C all right Typically, you will get beg inventory too and then you can do a 365/ [purchases/payables] where purchases = EI + CGS - BI but since no beg inv is listed, we do Days payable = payables/COG * 365 -----> 274 dys hope that helps the net operating and operating cycle is important, it keeps reappearing in my questions as far as I can tell. That and ROE Dupont and all its permutations. OC = DSO + DIO NOC = DSO + DIO - DPO DPO = “days payable”
NOC is same as “cash conversion cycle”
Ans C. If the company is getting better with operations and improving the profits maintaining the same sales, then the prices will not be adjusted if we use P/S measure. A- can be advantage, or disadvantage (if profit margin increases with better sales, advantage. otherwise disadvantage) B - advantage C - disadvantage D - Not sure??