Final answer:
The correct answer to the student's question is: A.) A low receivables turnover ratio. A low receivables turnover ratio is a negative indicator of a company's ability to turn its receivables into cash because it suggests inefficiencies in the collection process or problems with credit sales.
Step-by-step explanation:
When analyzing a company's ability to turn its receivables into cash, financial ratios such as the receivables turnover ratio and the average collection period are essential tools. These ratios help gauge the efficiency and effectiveness of the company's credit policies and collection processes.
A low receivables turnover ratio suggests that a company may be less efficient at collecting money owed by customers, taking longer to convert credit sales into cash. This can be a negative indicator as it may signal issues such as lenient credit policies, ineffective collections strategies, or a customer base with financial difficulties. On the other hand, a high receivables turnover ratio indicates that a company is efficient at collecting its receivables. Similarly, a low average collection period means that the company is quick to turn receivables into cash.