Question

Rabe Corp with its subsidiaries operates as an entertainment company worldwide. The companies media networks segment operates cable programming businesses under the ESPN, Disney and Freeform brands, broadcasts businesses, including ABC TV networks. Assume that Rabe Corp had purchased for the year 95318. At the end of the year the accounts payable balance was 22816

Compute how long on average it took Rabe to pay off its suppliers during the year

With regard to the above ratio what does a high/low ratio imply? Is Rabe Corps Ratio high or low? Explain.

Answer 1

Average Payment Period = Average Accounts Payable /(Total Credit Purchases/Days in Period)

= 22816/(95318/365)

= 87.37 days

= 87 days approx

Above payment period shows longer payment period which is good for the company.The company is saving funds by having a long payment period and company can save this money by investing this money at higher rates of Investment.

The average payment period is high for the company which is good for the company i.e 87 days in the industry.Company can manage it's cashflow in the better manner and can earn good return on such amount.