Owen Moore, owner of a furniture store, is concerned about the payables turnover for the company. Consider the following:
Period June July August September October
Payables Turnover 6.1 7.5 8.2 9.3 11.0
a. Owen asks what this ratio means? He is under the impression that the lower the number, the better things are going. describe to Owen what the above trend indicates?
b. Owen asks if there is another way to interpret this result, something a little easier to understand?
c. Owen asks what the implications of this result are for taking discounts for early payment. describe what is likely to occur with regard to discounts for Owen.
d. Owen's operating cycle is 90 days. Discuss the implication of this cycle length with respect to the length of the average payment period for Owen.