This latter red flag is triggered when the increase in payables exceeds the 80th percentile relative to the change experienced by industry peers between 20. they are very high) relative to GICS industry peers, and/or when there is an abnormally large increase relative to the normal rate of change amongst industry peers over one and three years. Our accounting screen is set to trigger a red flag when payables exceed the 80th percentile (i.e. As such, investors should be wary or large and rising payables. Furthermore, a rising payable leads to an increase in operating cash flow which may flatter other operating cash flow based metrics. In this instance, management might fail to disclose interest expenses to their auditor. However, in some instances debt is disguised as payables in order to make leverage ratios look lower than reality. Large payables are not always problematic and could suggest that a company has simply managed to negotiate excellent supplier payment terms. Industries with larger payables tend to be those with longer production times, such as construction and real estate, while those with smaller payables have shorter production times, such as retailers. Presumably, problems in Italy and Spain are related to corporate insolvency in the aftermath of the Global Financial Crisis. Most industries pay their suppliers within 36-55 days, in other words payables are 10-15% of sales, as shown in Figure 41. For example, Italian and Spanish companies took twice as long to pay their suppliers between 20 (at 20% of sales) than Thai and Russian ones (at less than 10%). The speed at which a company pays its suppliers is more likely dictated by the industry that it operates in than its domicile, although sometimes cultural considerations are important. We penalise companies with high and/or rising payables relative to industry peers. The reason we include both is that some companies are not required to report their COGS and so the more traditional Payable Days metric fails to populate. For the purposes of our analysis, we have used two ratios: payables as a percentage of sales and of Cost of Goods Sold (COGS). We penalise companies with a high and/or rising level of payables relative industry peers. Is the amounts owed by a business to its suppliers and others. Sum of accounts payable, accrued income taxes, interest and dividends payable and other accrued liabilities. The accounts payable turnover ratio is an accounting liquidity measure that evaluates how quickly a company pays its creditors (suppliers).
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