Final answer:
The two key ratios that help in understanding a company's effectiveness in managing receivables are the average collection period, indicating the average days to collect payments, and the receivable turnover ratio, showing how often receivables are collected in a period.
Step-by-step explanation:
The question is asking about two important ratios that are used to measure a company's ability to manage its receivables effectively. Out of the options provided, c. average collection period and d. receivable turnover ratio are the correct choices. These ratios are significant indicators of a firm's efficiency in collecting its receivables, which are amounts owed by customers for goods or services provided on credit.
The average collection period is calculated by taking the average accounts receivable divided by the total net credit sales and then multiplying the result by the number of days in the period being analyzed. This ratio indicates the average number of days it takes for a company to collect payments from its customers. On the other hand, the receivable turnover ratio is calculated by dividing the total net credit sales by the average accounts receivable. This ratio measures how many times a company collects its average accounts receivable during a period and shows how efficiently it is managing the credit it extends to customers.