Question

Following are the average accounts receivable and net sales reported recently by two large beverage companies (dollar amounts are stated in millions):

Average Accounts Receivable Net Sales
Molson Coors Brewing Co. $517 5,170
Anheuser-Busch InBev 2,606 39,046

a. Compute the accounts receivable turnover rate for each company (round your results to one decimal place)
b. Compute the average number of days that it takes for each company to collect its accounts receivable (round your results to the nearest whole day).

Answer 1

Part a.

Accounts receivable turnover ratio is the shows how many times accounts receivable can be converted in to cash during the period. The formula for calculating the same is given below.

Accounts receivable turnover ratio = Net credit sales / Average accounts receivable

The following table shows the accounts receivable turnover ratio of MCB and ABI:

Particulars MCB ABI

Net sales $5,170 $39,046

Average Accounts Receivable $517 $2,606

Accounts Receivable Turnover rate 10 14.98

Part b.

Day's sale outstanding shows the average number of days taken to collect the accounts receivable. The formula for calculating the same is given below.

Day's sale outstanding = Accounts receivable / Total credit sales × 365

The following table shows the days sale outstanding of MCB and ABI:

Particulars MCB ABI

Net sales $5,170 $39,046

Average Accounts Receivable $517 $2,606

Day's sale outstanding 36.5 24.36