Question

Presented here is basic financial information (in millions) from the annual reports of Nike and Adidas.

Nike Adidas
Sales $18,627 $10,299
Allowance for doubtful accounts, Jan. 1 71.5 112
Allowance for doubtful accounts, Dec. 31 78.4 111
Accounts receivable balance (gross), Jan 1 2,566.2 1,527
Accounts receivable balance (gross), Dec. 3 12,873.7 1,570

Required:
Calculate the accounts receivable turnover and average collection period for both companies.Comment on the difference in their collection experiences.

Answer 1

Answer and Explanation:

Nike

$18,627÷ ($2,494.7a+ $2,795.3b)/2

$18,627÷$2,645 = 7.0 times

Adidas

$10,299÷$1,415c+ $1,459d)/2

10,299÷$1 437= 7.2 times

2,566.2 – 71.5

b2,873.7 – 78.4

c1,527 – 112

d1,570 – 111

Average collection period

Nike

365÷7.0= 52.1 days

Adidas

365÷7.2

= 50.7 days

Therefore Adidas's accounts receivable turnover was about 3% higher [(7.2 – 7.0) ÷7.0] than that of Nike's, which simply means that Adidas was slightly more efficient than Nike in turning accounts receivable into cash.