hello, I am a CA PCC Student. I have a doubt in financial ratio analysis. I hope someone can help me here. My Doubt is
In the balancesheet as on 31.3.xx - Payables = 20000
In the Profit and Loss account for 31.3.xx - Credit Purchases = 240000
Now payables Turnover = 240000/20000 = 12
AVERAGE AGE of payables = 12/12 = 1
This means that it will be paid in 1 month or 30 days.
My Question is How can it be that the average age is 1 month or 30 days. For example 20000/30 = 666.67 Rs per day Purchase. Therefore
The First 666.67 Will be 30 days old
The Second 666.67 will be 29 days old
The third 666.67 will be 28 days old.....
and so on Until the last 666.67 will be 1 day old....
The average will come to 15 or so days and not 30 days. So why are we saying that the average age is 30 days? What is the Logic?
CAclubindia
