CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst forecasts accounts payable using days payable outstanding. Forecast COGS is 730 million and DPO is projected to fall from 40 days to 30 days. Using a 365-day year, the change in forecast payables, relative to keeping DPO at 40 days, most likely results in a cash:
The shorter payment period most likely causes a cash outflow of 20 million. Payables at 40 days are 80 million and at 30 days are 60 million, so the company pays suppliers 20 million more. Treating the decline as an inflow gets the sign wrong.
- Ainflow of 20 million
- Boutflow of 20 millionCorrect
- Coutflow of 60 million
Explanation
Payables at 40 days = 730 x 40/365 = 80; at 30 days = 60. Payables are 20 million lower, so more cash is paid to suppliers: an outflow of 20 million. An inflow reflects the wrong sign.
Did you get it right without looking?
One question tells you little. A timed set on Introduction to Financial Statement Modeling shows your real accuracy, how long you take and where you lose marks.
More Introduction to Financial Statement Modeling questions
- Which of the following is the most likely limitation of a financial statement forecasting model that relies heavily on historical relationsh…
- An analyst forecasts a retailer's income statement using a top-down approach. Which forecast is the analyst most likely to start with?
- A company's forecast sales next year are 800. Its model assumes receivable days of 45 on a 365-day year using year-end receivables. Opening …
- An analyst forecasts a manufacturer's cost of goods sold. Raw material prices are contractually fixed for the next three years, but the comp…
- A restaurant chain has 200 outlets at the start of the year and plans to open 20 outlets, spread evenly through the year, so that the averag…
- An analyst forecasts industry sales of 50 billion next year and expects the company's market share to rise from 12% to 14%. Industry sales w…