Let”s say you want to know how well Icon manages its collection of sales on credit. Assume that 95% of the net sales are credit sales and that the initial accounts receivable balance was $50,000. Using the financial statements provided, answer the following questions:
How would you analyze the given scenario?
Which ratio will you calculate?
What will be the ratio?
Net credit sales = 95% of $11,000,000 = $10,450,000
Average accounts receivable = $1,190,000 + $50,000 divided by 2 = $620,000
Accounts receivable turnover = $10,450,000 / $620,000 = 16.85
On an average, for how many days during a year are the company’s accounts receivables outstanding?