The company's receivables turnover, calculated by subtracting the cash cycle from the operating cycle, is 23 days, indicating the average time to collect payment from customers.
The receivables turnover can be calculated using the formula: Receivables Turnover = Operating Cycle / Receivables Conversion Period. The Receivables Conversion Period represents the average number of days it takes for a company to collect payment from its customers.
In this case, the Operating Cycle is given as 77 days. To find the Receivables Turnover, we subtract the Cash Cycle from the Operating Cycle, as the Cash Cycle includes the Receivables Conversion Period. Therefore, Receivables Turnover = Operating Cycle - Cash Cycle.
Receivables Turnover = 77 days−54 days = 23 days
This implies that, on average, the company takes approximately 23 days to collect payment from its customers. It's an important metric for evaluating the efficiency of a company's credit and collection policies, indicating how quickly it can convert its receivables into cash.
Complete question:
Assume a company has a cash cycle of 54 days and an operating cycle of 77 days. What is the company's receivables turnover? (Use 365 days a year and round your answer to 2 decimal places.)