Question

A firm has $42,900 in receivables and $211,800 in total assets. The total asset turnover rate is 1.40 and the profit margin is 5.2 percent. How long on average does it take the firm to collect its receivables

Answer 1

52.81 days

Step-by-step explanation:

First, we need to calculate sales

Asset turnover rate = Net sales / Total asset

Asset turnover = 1.40

Total assets = $211,800

Net sales = x

1.40 = x / $211,800

x = $211,800 × 1.40

x = $296,520

Net sales = $296,520

Therefore, number of receivable days

= Account receivables / Sales (revenue)

= $42,900 / $296,520 × 365 days

= 52.81 days