Question

The following information is from the annual financial statements of Raheem Company. Year 3 Year 2 Year 1 Net sales $ 436,000 $ 367,000 $ 421,000 Accounts receivable, net (year-end) 43,900 41,700 38,400 (1) Compute its accounts receivable turnover for Year 2 and Year 3. (2) Assuming its competitor has a turnover of 15.3, is Raheem performing better or worse at collecting receivables than its competitor

Answer 1

Year 2 receivable days = 8.8 times

Year 3 receivable days =9.9 times

Step-by-step explanation:

Days sales receivables is the average length of time it takes a business to collect the amount owing in respect of credit sales transaction. The shorter the days, the better. If the receivable is computed in the number of times, the higher the better.

Receivable days = Average receivables /Credit sales × 365 days

Year 2 receivable days = 367000/41700× 365=8.8

Year 3 receivable days = 436,000/43900× 365=9.9

The receivable turnover of Raheem company is lower than that of the competitors, this implies that it takes the company a longer period to collects its receivables than its competitor. Hence, Raheem is less competitive

Year 2 receivable days = 8.8 times

Year 3 receivable days =9.9 times