Question

Use the information from the table below to calculate the days sales outstanding ratio.

Balance Sheet (Millions of $)

Assets 2016
Cash and securities $2,145
Accounts receivable 8,970
Inventories 12,480
Total current assets $23,595
Net plant and equipment $15,405
Total assets $39,000
Liabilities and Equity:
Accounts payable $7,410
Accruals 4,290
Notes payable 5,460
Total current liabilities $17,160
Long-term bonds $7,800
Total liabilities $24,960
Common stock $5,460
Retained earnings 8,580
Total common equity $14,040
Total liabilities and equity $39,000

Income Statement (Millions of $) 2016
Net sales $58,500
Operating costs except depreciation 54,698
Depreciation 1,024
Earnings before interest and taxes (EBIT) $2,779
Less interest 829
Earnings before taxes (EBT) $1,950
Taxes 683
Net income $1,268
Other data:
Shares outstanding (millions) 500.00
Common dividends (millions of $) $443.63
Int rate on notes payable 6.25%
Federal plus state income tax rate 35%
Year-end stock price $30.42

a. 50.93
b. 55.97
c. 69.96
d. 68.84

Answer 1

b. 55.97

Step-by-step explanation:

Note: It is assumed that the sales value provided in the question is made on credit and the number of days in a year is as standard 365 days.

The Days Sales Outstanding are the average days that a company takes to collect the payment against the sales. The sales are made on credit and it takes some days to receive the cash against the sale made on credit.

Use the following formula to calculate the Days Sales Outstanding

Days Sales Outstanding = ( Account receivable / Sales in the year ) x Numbers of days in the year

Account receivable = $8,970

Sales in the year = $58,500

Numbers of days in year = 365 days ina year

Placing values in the formula

Days Sales Outstanding = ( $8,970 / $58,500 ) x 365 days

Days Sales Outstanding = 55.97 days

Hence it will take 55.97 days to recover the cash against the sales made on credit.