EarthLink, Inc., is a nationwide Internet Service Provider (ISP). Earthlink provides a variety of services to its customers, including narrowband access, broadband or high speed access, and Web hosting services. For the years ending December 31, 2005 and 2004, Earthlink reported the following (in thousands):
|
|
Year Ending |
|
|
|
Dec. 31, 2005 |
Dec. 31, 2004 |
|
Net sales |
$1,290,072 |
$1,382,202 |
|
Accounts receivable at end of year |
36,033 |
30,733 |
Assume that the accounts receivable (in thousands) were $35,585 at January 1, 2004.
1. Compute the accounts receivable turnover for 2005 and 2004. Round to one decimal place.
2. Compute the days’ sales in receivables at the end of 2005 and 2004.
3. What conclusions can be drawn from (1) and (2) regarding EarthLink’s efficiency in collecting receivables?
4. Given the nature of EarthLink’s operations, do you believe EarthLink’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company, such as Boeing or Kellogg Company? Explain.