Question

A company has net income of $199,000, a profit margin of 9.50 percent, and an accounts receivable balance of $106,108. Assuming 74 percent of sales are on credit, what is the company's days' sales in receivables

Answer 1

Receivables days = 25 days

Step-by-step explanation:

The receivable days is the average length of time it takes a business to receive cash from customers in respect of credit sales made.

It is calculated as follows:

Receivables days = Receivables / Credit sales × 365 days.

The credit sales is missing , hence we need to work it out as follows:

Net income =profit margin × total sales revenue

let sales value be represented by "y"

199,000 = 9.50% × y

y = 199,000/0.095

y= 2,094,736.84

Total sales revenue = 2,094,736.84

Credit sales = 74% × total sales revenue

= 74% × 2,094,736.84=1,550,105.263

Receivables days =106,108/1,550,105.26× 365 days= 24.98

Receivables days = 25 days