The following are the two ratios discussed in your text with respect to analysis

Question

The following are the two ratios discussed in your text with respect to analysis of accounts receivable:

A/R turnover ratio = Net Credit Sales/Ave. Net A/R

Days in A/R = 365/AR turnover ratio

In most cases, companies do not disclose "credit sales" separately from "cash sales" in their annual report. Thus Net Sales [or Net Revenues] is frequently used in the A/R turnover ratio. If a restaurant company's A/R turnover ratio = 51.2 [excessively high, as mainly cash sales, as remember credit card sales are treated as cash sales] compute the company's "days in A/R".

A. 7.13
B. .14
C. 2.16
D. 7.68

Explanation / Answer

compute the company's "days in A/R".

A. 7.13

i.e. 365 / 51.2

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