Question

Below are amounts (in millions) from three companies' annual reports. Beginning Accounts Receivable Ending Accounts Receivable Net Sales WalCo $ 1,625 $ 2,572 $ 303,427 TarMart 5,216 5,744 48,878 CostGet 439 475 49,963 Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet

Answer 1

1. Accounts Receivable Turnover

Walco 144.59 Times

Tarmart 8.9 Times

Costget 109.33 Times

Average collection period

Walco 2.52 Days

Tarmart 41.01 Days

Costget 3.34 Days

2. Walco

Step-by-step explanation:

1. Calculation to determine the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet

ACCOUNTS RECEIVABLE TURNOVER

Using this formula

Accounts Receivable Turnover=Net Sales/Average Accounts receivable

Walco=$ 303,427/($ 1,625+2,572)/2

Walco=$ 303,427/$2,098.5

Walco =144.59 Times

Tarmart= 48,878/(5,216 + 5744)/2

Tarmart= 48,878/5480

Tarmart= 8.9 Times

Costget= 49,963/(439 + 475)/2

Costget= 49,963/457

Costget= 109.33 Times

Therefore the receivables turnover ratio is :

Walco 144.59 Times

Tarmart 8.9 Times

Costget 109.33 Times

AVERAGE COLLECTION PERIOD

Using this formula

Average collection period=Average Collection Period

365 /Receivables turnover ratio

Let plug in the formula

Walco= 365.00/144.59 Walco=2.52 Days

Tarmart= 365.00/8.9

Tarmart= 41.01 Days

Costget= 365.00/109.33

Costget=3.34 Days

2. Based on the above calculation the company that appears MOST EFFICIENT in collecting cash from sales is WALCO 144.59 Times.