Standard Industry Classifications, How are you doing compared to others? Standar

Question

Standard Industry Classifications, How are you doing compared to others?

Standard Industry Classification codes (SIC) are used for financial statement “benchmarks” analysis. Your company’s financial results would need to be compared to others. SICs provide the format to compare a particular company’s financial data to their respective SIC-industry averages.

Explain how you would use SIC codes to analyze a Company Xs Accounts Receivable Turnover of four times per year versus a SIC rate of eight times per year.

Explanation / Answer

Company X Account Recievable Turnover : 4

SIC rate : 8

Account Recievable Turnover (1) = Net Credit Sales / Account recievables  

Collection Period for recievables = 365 / (1)

Accounts receivable turnover is an indication of the quality of credit sales and receivables. A company with a higher ratio shows that credit sales are more likely to be collected than a company with a lower ratio.

So Company X's account recievable turnover is less than SIC,so it implies that Company X collectability of recievables is lower than the SIC.

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