Question

A company has a net income of $190,000, a profit margin of 9.40 percent, and an accounts receivable balance of $106,351. Assuming 72 percent of sales are on credit, what is the company's days' sales in receivables?

Answer 1

The company's days' sales in receivables is 22 days

Step-by-step explanation:

In order to calculate the company's days' sales in receivables we would have to calculate first the total sales with the following formula:

Total Sales = Net Income / Profit Margin

= $190,000/9.4%=$2,021,276

Hence, Credit Sales = $2,021,276*0.85= $1,718,085

Accounts receivable turnover ratio = Credit sales / Accounts Receivable

= $1,718,085 /$106,351

= 16.15485

Therefore, Days sales in receivables = 365/16.15485= 22.59 days

The company's days' sales in receivables is 22 days