A firm\'s annual credit sales are $1.2 million and its average receivables are $
ID: 1171859 • Letter: A
Question
A firm's annual credit sales are $1.2 million and its average receivables are $150,000. Assuming a 360-day year, the average collection period (ACP) is
a. 20 days.
b. 45 days.
c. 30 days.
d. 60 days.
If an analyst wanted to compute a rough measure of a firm's financial risk, which of the following types of ratios would be preferred?
a. liquidity ratios
b. coverage ratios
c. profitability ratios
d. debt ratios
a. 20 days.
b. 45 days.
c. 30 days.
d. 60 days.
If an analyst wanted to compute a rough measure of a firm's financial risk, which of the following types of ratios would be preferred?
a. liquidity ratios
b. coverage ratios
c. profitability ratios
d. debt ratios
Explanation / Answer
Average collection period = (Average A/c Receivable/ Sales)* 365
= (150000/ 1200000)* 360
= 0.125* 360
= 45 days
To find a firms financial ratio, debt ratio is calculated.
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