Accounts Payable Management Proposal

Philippine Seven Corporation

Submitted By:
John Carlo Realin
Marlon Rodriguez
Krisha Mae Genovisa
Kristelle Jose
Marcelina Willis
Remark

Submitted To:
Mr. Jom de Guzman, C

This proposal aims to provide some improvements for the accounts

payable of the Philippine Seven Corporation (PSC). Based on PSCs financial
statement, we have observed that the corporations accounts payable
throughout 2011 to 2013 gradually increased. And we have speculated that
there are other reasons that may be attributable to the corporations
increasing accounts payable.
Based on the Statement of Financial Position of Philippine Seven
Corporation, we have computed the working capital ratio and we have
concluded that the corporation is not able to meet its short term obligations.
Supporting Computations:

Current Asset
2606079897
=
=.84
Current Liabilities 3113562952

For a corporation to have a good standing with regards to its working

capital ratio, the ratio must be 1 is to 1, which means that for every peso
liability of the corporation it must have an equivalent of one peso to pay for

it. But in PSCs case, for every peso liability it will only have 84 cents as
payment for it. Therefore, the current assets of the corporation are not
enough to cover its day to day obligations. : 2606079897/3113562952=.84
Since the working capital ratio shows that the corporation is not liquid
to pay off its short term debts then we have proposed that the corporation
may make use of its idle assets by leasing, selling etc. then the proceeds
that the corporation will obtain therefrom can be used to cover up the
accounts payable or may be used for short term investments.
Aside from working capital ratio, the payable turnover ratio shows that
it pays its creditors about an average of 7 times a year
Supporting computations:
Net Sales
10,800,834,938
=
=6.897
Ave rage Accounts Payable (1,872,703,489+1,261,289,989)
2
Payable turnover ratio= 10,800,834,938/ [(1,872,703,489+1,261,289,989)/2]
= 6.89 or 7 times
A high payable turnover ratio indicates a short period of time between
purchases and its payment; it may be because that a business has a better
liquidity position. On the other hand, a lower accounts payable turnover ratio
signifies that the company is having a hard time paying its creditors and it is
struggling to find cash to pay its liabilities. But it may also indicate that the
company is just extending it the period to pay its creditors to generate extra
cash or to get extra liquidity.
Supporting computations:
7=52.1452 days
365 days
DaysPayable Outstanding=

Days in Payable Outstanding = 365/7 times = 52.14 or 52 days

At first glance, this may seem favorable but if the corporations
accounts payable is considered, it will show that it is not enough. We have
concluded that paying the creditors roughly 7 times a year is not enough
because its accounts payable is valued in billions.

A good way to solve this problem is by doing the following steps:

Ascertaining the total amount of the corporations debt

Sorting the debts from the ones with the highest rate to the lowest
rate
Make consistent payments with those debts that are not as high as the
other debts
Gradually make payments with those debts with high interest rates so
that the interest expense which corresponds to these debts will not
accumulate.

Lastly, the payment and discount terms offered by the creditors to the
corporation must be considered. By doing these steps, the credit rating of
the company can be improved.