Using the provided pictures, Evaluate the following for receivables; A. Compare
ID: 2572313 • Letter: U
Question
Using the provided pictures, Evaluate the following for receivables; A. Compare company performance to industry information. Did each company perform betner or worse than its industry? Why? B. Which company appeared to manage credit and collections more effectively? What direction is the trend moving over the two-year period? Interpret findings 1. Record the accounts balances from the year-end financial statements Company #1 (In millions) McDonald's 15** 25,413,000 the v 16* Net Sales 24,621,900 Use latest available Annual Report Form 10-K, (it may be 2017). Use prior year Company #1 Company #2 Balance Sheet In millions) 016 768,800 9,400,000 2015 719,000 10,800,000 2016 474,100 2015 For the year ended Accounts Receivable, net Allowance for Doubtful 700 Save your source of information as pdf file or weblink. Attach a copy of income statement and balance sheet to your assignment 2. Compute ratios. Use 365 days in year, Round numbers to one decimal place Ratios Company #1 Company #2 16* 16 201 10.4 21.9 215.6 1.49 27 Days Sales in Receivables 13.2 Inventory Tumover Days' Sales in Inventory 59.1 26.7 13.7 5.96 61.2 12.70 18. 139.6 2.3 6.2 3. Go to University Libraries: Hoovers' Online and research the industry averages (use ndustry median) using the company page for "Competitors Landscape Ratios Year 21.96 Days Sales in Receivables 17 Inventory Tumover Days Sales in Inventory 12.85 Use most current year noted aboveExplanation / Answer
A. The receivables turnover is measured by dividing the net credit sales by the average receivables and it denotes how many times the receivables turnover during a year. The higher the receivables turnover, the greater is the effectiveness of credit management.
The days sales in receivables is measured by dividing the number of days in a year by the receivables turnover. It denotes the number of days a company will take to collect its receivables and hence the lesser the days sales in receivables, the better managed are the receivables.
In comparison to the industry’s receivables turnover of 21.96 and days sales in receivables of 8.17 for 2016, it is observed that McDonald’s had a lower receivables turnover of 10.4 and higher days sales in receivables of 21.9 and hence performed worse than the industry. However, in case of Starbucks, the receivables turnover at 27.7 was higher than the industry and the days sales in receivables at 13.2 was lower than the industry denoting that its receivables management outperformed that of the industry.
B. From an analysis of the data, it is observed that between the two companies, Starbucks is more effective in managing its credit and collections as compared to McDonalds as it enjoys a higher receivables turnover and lower days sales in receivables.
Also the trend over the two-year period shows and it is improving for Starbucks however the same is declining for McDonalds.
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