Principles of Financial Accounting · free preview
Measuring Receivables Efficiency with Financial Ratios
Accounts receivable turnover and days' sales in receivables measure how quickly a company converts credit sales into cash, revealing collection efficiency and the quality of credit policy.
1. Why collection speed matters
Why collection speed matters
2. Receivables turnover
Receivables turnover
3. Days' sales outstanding
Days' sales outstanding
4. Reading the trend
Reading the trend
5. Turnover inputs
What data are needed to compute receivables turnover?
6. Computing turnover
Net credit sales are 900,000 dollars and average accounts receivable is 112,500 dollars. Compute receivables turnover.
7. Computing DSO
Receivables turnover is 8. Compute days' sales in receivables, rounded to the nearest whole day.
8. Interpreting DSO versus terms
A company's credit terms are net 30, and its DSO is 46 days. What is the most reasonable conclusion?
9. Average receivables
Beginning receivables are 100,000 dollars and ending receivables are 125,000 dollars. Compute average accounts receivable in dollars, number only.
10. Days sales outstanding direct
Average receivables are 112,500 dollars and daily credit sales are 2,466 dollars. Compute days sales outstanding by dividing average receivables by daily credit sales, rounded to the nearest whole day.
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