Question

Value 2.00 points A company has net income of $193.000, a profit margin of 9.10 percent and an accounts receivable balance of $106.599. Assuming 71 percent of sales are on credit what is the company's days' sales in receivables? 0 749 days O 34 94 days 0 2713 days O 18.35 days O 25.84 days References eBook & Resources Multiple Choice Learning Objective 03 02 How to compute and, more imponantly, interpret some common ratios Difficulty: Intermediate Section 33 Ratio Analysis

Answer 1

To calculate days sales receivables we first need to know the sales revenue for the given comapny for that period:

Formula to calculate Days Sales Recievables or Days sales outstanding(DSO) = (Accounts receivables / Net credit sales ) * 365

Accounts receivables = $106,599

Net credit sales = 71% of the Sales or revenue.

So, to know the Net credit sales amount we need to calculate sales value for that period.

we have another ration given here, profit margin = 9.1% and

Profit margin = Net income / Revenue

or Revenue = Net income / profit margin

So from the above formula:

Reveune = $193,000 / 0.091 = $2120879.121

Net credit sales = 71% of Revenue = 0.71 * $2120879.121 = $1505824.176

Therefore,  Days Sales Recievables or Days sales outstanding(DSO) = (Accounts receivables / Net credit sales ) * 365

Days Sales Receivables = ($106,599 / $1505824.176) * 365 = 25.84 days.

Hence, the comapny will take 26 days on an average to collect money from its debtors.

Hence, Option (D) is correct.