Consider the following data determined from the financial statements of a major retailer: Inventory turnover = 75 days Days' sales outstanding = 30 Days' purchases outstanding = 50 Which of the following statements is correct?
1. Consider the following data determined from the financial statements of a major retailer:
Inventory turnover = 75 days
Days' sales outstanding = 30
Days' purchases outstanding = 50
Which of the following statements is correct?
A.All of these statements are correct.
B.On average, the company pays its suppliers 55 days before it collects cash from its customers.
C.On average, the company sells the inventory 45 days before it collects cash from its customers.
D.On average, the company collects cash from its customers 20 days before it pays its suppliers.
E.On average, the company purchases its inventory 25 days before it sells it.
2. Which of the following would explain why Payments to suppliers and employees for the period is greater than Total operating expenses for the period?
A.Significant impairments of non-current assets during the period.
B.Significant levels of prepaid expenses at the end of the period.
C.Significant levels of trade payables at the end of the period.
D.Significant levels of accrued expenses at the end of the period.
E.All of these would explain why Payments to suppliers and employees for the period is greater than Total operating expenses for the period.
3. A company's Return on assets is greater than its Return on equity.
Which of the following is the most likely cause of this?
A.The entity has too much debt.
B.Earnings before interest and tax is greater than net profit.
C.Average equity is greater than average assets.
D.All of these are likely causes.
E.The return on assets is lower than the cost of finance.
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