A firm has total assets of 5,320, net sales of 8,395, average receivables of 894, current assets of 2,393 and a current ratio of 1.2. Its average receivables collection period equals ________.
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A. B. C. D.D
This is measured by two ratios in slightly different ways:
a. Receivables turnover ratio = Net annual sales/average receivables b. Average receivables collection period = 365/receivables turnover
In this case, receivables turnover = 8,395/894 = 9.39. Therefore, average receivables collection period = 365/9.39 = 38.87 days. Notice that the collection period is measured in "days."