# Financial Statement Analysis: Average Payment Period Ratio

Average Payment Period Ratio = Current Liabilities / ([Total Operating Expenses â€“ Depreciation and Amortization Expenses] / 365)

Part 1: Average Payment Period Ratio Report Development

For this assignment, you will develop and analyze financial statements. Part 1 of the assignment includes describing what an average payment period is and how it is calculated. Use the years and the dollar amounts provided in the table below:

 Operating Expenses Depreciation and Amortization Difference Days per Year Average Cash Expense per Day 15,255,263.00 553,219.00 365 12,589,823.00 665,393.00 365 Year Current Liabilities Average Cash Expense Per Day Average Payment Period Days 2011 2,550,263.00 2012 4,553,681.00

Using an Excel spreadsheet (or any other tool for performing calculations), determine the average payment period for FY2011 and FY2012. Use the following steps:

• Use the provided dollar amount of total operating expenses and depreciation and amortization.
• Subtract depreciation and amortization from the operating expenses and divide by 365 days to compute the average cash expense per day.
• Identify the dollar amounts for current liabilities on the balance sheet.
• Divide the current liabilities by the average cash per day.
• Determine if the trend is positive or negative for the average payment period days.
• Determine if the 2011 and 2012 average payment period days are above or below the industry benchmark.

Part 2: Risks and Benefits Analysis