Question

fedex corporation reported the following rounded amounts (in millions): 2019 2018 accounts receivable $9,415 $8,880 allowance for doubtful accounts (300) (400) accounts receivable, net of allowance $9,115 $8,480 net sales (assume all on credit) $69,690 $65,450 required: determine the receivables turnover ratio and days to collect for 2019. do the measures calculated in requirement 1 represent an improvement (or deterioration) in receivables turnover, compared to 2018, when the turnover was 8.1?

Answer 1

The receivables turnover ratio for 2019 is 7.53, and the days to collect is 48.44 days. These measures represent a deterioration in receivables turnover compared to 2018.

Step-by-step explanation:

To determine the receivables turnover ratio, we can use the formula: net credit sales / average accounts receivable. In this case, the net credit sales for 2019 is $69,690 million. The average accounts receivable can be calculated by adding the beginning and ending accounts receivable and dividing by 2. For 2019, the average accounts receivable is ($9,415 million + $9,115 million) / 2 = $9,265 million. Therefore, the receivables turnover ratio for 2019 is $69,690 million / $9,265 million = 7.53.

To calculate the days to collect, we can use the formula: 365 days/receivables turnover ratio. In this case, the days to collect for 2019 are 365 days / 7.53 = 48.44 days.

To determine whether the measures represent an improvement or deterioration in receivables turnover compared to 2018, we can compare the values. In 2018, the receivables turnover ratio was 8.1. Since the receivables turnover ratio for 2019 is lower than in 2018, it represents a deterioration in receivables turnover. Similarly, the days to collect for 2019 (48.44 days) is higher than 2018, indicating a longer timeframe to collect receivables.