FA Mod 7 Turnover ratios practice exam questions


FA Mod 7 Turnover ratios practice exam questions

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FA Module 7 Turnover ratios practice exam questions

(The attached PDF file has better formatting.)

A firm’s financial statements show

    Calendar Year 20XX-1    Calendar Year 20XX
Net revenue    541    547
Cost of goods sold     270    238
Net income     117    141
    December 31, 20XX-1    December 31, 20XX
Accounts receivable     85    91
Inventory
        113    144
Accounts payable     48    59


All purchases and sales are on credit.

Question 7.2: Receivables turnover

What is the receivables turnover in 20XX?

Answer 7.2: 547 / ( (85 + 91) / 2) = 6.216

(receivables turnover = credit sales / average accounts receivable)


Question 7.3: Days of sales outstanding (DSO)

What is the number of days of sales outstanding (DSO) in 20XX?

Answer 7.3: 365 / 6.216 = 58.72

(days of sales outstanding = days in year / receivables turnover)


Question 7.4: Inventory turnover

What is the inventory turnover in 20XX?

Answer 7.4: 238 / ( (113 + 144) / 2) = 1.852

(inventory turnover = cost of goods sold / average inventory)


Question 7.5: Days of inventory on hand (DOH)

What is the number of days of inventory on hand (DOH) in 20XX?

Answer 7.5: 365 / 1.852 = 197.08

(days of inventory on hand = days in year / inventory turnover)


Question 7.6: Purchases from suppliers

What is the purchases of inventory from suppliers in 20XX?

Answer 7.6: 238 + (144 – 113) = 269

(purchases of inventory from suppliers = cost of goods sold + Δ(inventory) )


Question 7.7: Payables turnover

What is the payables turnover in 20XX?

Answer 7.7: 269 / ( (48 + 59) / 2) = 5.028

(payables turnover = purchases of inventory from suppliers / (average accounts payable) )


Question 7.8: Days of payables

What is the number of days of payables in 20XX?

Answer 7.8: 365 / 5.028 = 72.59

(days of payables = days in year / payables turnover)


Question 7.9: Cash conversion cycle

What is the cash conversion cycle in 20XX?

Answer 7.9: 58.72 + 197.08 – 72.59 = 183.21

(cash conversion cycle = days sales outstanding + days inventory on hand – number of days of payables)


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