Question

Explain the metrics used to analyze a company’s accounts receivable and how the results are interpreted to support management decision making?

a) Key Performance Indicators (KPIs) such as Days Sales Outstanding (DSO) and Average Collection Period (ACP) are utilized. These metrics assess the efficiency of receivables management.

b) Social media engagement and brand visibility are crucial factors in evaluating accounts receivable, providing insights into customer relationships.

c) The company's stock price and market capitalization are the primary indicators used to analyze accounts receivable, guiding management decisions.

d) Employee satisfaction surveys and workplace culture assessments play a significant role in understanding accounts receivable performance and influencing decision-making.

Answer 1

Key performance indicators such as DSO and ACP are used to analyze accounts receivable and measure receivables management efficiency.

Step-by-step explanation:

Metrics used to Analyze Accounts Receivable

When analyzing a company's accounts receivable, several key performance indicators (KPIs) are used:

Days Sales Outstanding (DSO): This metric measures the average number of days it takes a company to collect payment from its customers. A lower DSO indicates more efficient receivables management.

Average Collection Period (ACP): This metric calculates the average number of days it takes to collect payment from customers. It is the reciprocal of DSO and provides similar insights into receivables efficiency.

These metrics help management assess the effectiveness of their receivables management practices and make informed decisions regarding credit terms, collection efforts, and potential customer credit risk.