Homework Answers
A) Accounts Receivable Turnover Ratio
| Year 2 | Year 3 | |
| Minkey Inc | 8.95 | 12.51 |
| Armer Inc | 10.77 | 12.73 |
Average Days to collect Receivables
| Year 2 | Year 3 | |
| Minkey Inc | 41 | 30 |
| Armer Inc | 34 | 29 |
Calculations
Accounts Receivable Turnover Ratio = Net Credit Sale / Average Accounts Receivable
Average Accounts Receivable = Accounts Receivable at Beginning + Accounts Receivable at End / 2
Average Days to collect Receivables = 365 / Accounts Receivable Turnover Ratio
I) Minkey Inc for Year 2
Accounts Receivable Turnover Ratio
Net Credit Sale = 33661.1 $
Average Accounts Receivable = 4167.9 + 3358 / 2
= 3762.95 $
Accounts Receivable Turnover Ratio = 33661.1 / 3762.95
= 8.95 Times
Average Days to collect Receivables = 365 / 8.95
= 40.78 = 41 Days
Minkey Inc for Year 3
Accounts Receivable Turnover Ratio
Net Credit Sale = 45326.4
Average Accounts Receivable = 3358 + 3889.2 / 2
= 3623.6 $
Accounts Receivable Turnover Ratio = 45326.4 / 3623.6
= 12.51 Times
Average Days to collect Receivables = 365 / 12.51
= 29.18 = 30 Days
Armer Inc for Year 2
Accounts Receivable Turnover Ratio
Net Credit Sale = 3392.8
Average Accounts Receivable = 298 + 332.3 / 2 = 315.15
Accounts Receivable Turnover Ratio = 3392.8 / 315.15
= 10.77 Times
Average Days to collect Receivables = 365 / 10.77
= 33.89 = 34 Days
Armer Inc for Year 3
Accounts Receivable Turnover Ratio
Net Credit Sale = 5152.3
Average Accounts Receivable = 332.3 + 477 / 2
= 404.65
Accounts Receivable Turnover Ratio = 5152.3 / 404.65
= 12.73 Times
Average Days to collect Receivables = 365 / 12.73
= 28.67 = 29 Days
B)
- Accounts Receivable Turnover Ratio is an efficiency Ratio and it is an indicator of a companies financial and operational perforamnce.So a higher Ratio is desirable.
- Average Days to collect Receivables is Desired to be Lower
(I) Change in Financial Position in Year 3 compared to Year 2 Minkey Inc
Accounts Receivable Turnover Ratio of Minkey Inc has increased from 8.95 to 12.51
Average Days to collect Receivables of Minkey Inc has decreased from 41 days to 30 days
This shows an increase in Liquidity and Improvement in Performance
(II) Change in Financial Position in Year 3 compared to Year 2 Armer Inc
Accounts Receivable Turnover Ratio of Armer Inc has increased from 10.77 to 12.73
Average Days to collect Receivables of Armer Inc has decreased from 34 days to 29 days
This shows an increase in Liquidity and Improvement in Performance
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