Question

In april, Alexander inc. had $3,875 million in sales and $990 million in accounts receivable. For the same period, mattel had $4,595 million in sales and $834 million in account receivable. calaculate the days sales uncollected for both companies.
a) which company appears to be doing better job in managing collection of its receivables (all other things assumed to be equal)?
b) explain and justify your answer with calculation of at least two relevant ratios you have learned in this course?

Answer 1

Calculation of Days Sales Uncollected

Company	Net Sales (A)	Account Receivable (B)	Days Sales Uncollected = B/A * 365
Alexander Inc.	$3,875 million	$990 million	$990 million/$3,875 million * 365 = 93.25 days
Mattel	$4,595 million	$834 million	$834 million/$4,595 million * 365 = 66.24 days

A) Company Mattel appears to be doing better.

B) Reason mattel is doing better is because of the fact that it is managing collection of its receivable in 66.24 days on an average as calculated above.

Also as per calculation of below ratio (Working Note:1), Mattel is able to convert its sales in cash in 5.5 times whereas Alexander Inc is able to convert its sales in cash in 3.91 times.

Working Note: 1

Calculation of Debtors Turnover ration

Company	Net Sales (A)	Account Receivable (B)	Debtors Turnover Ratio= A/B
Alexander Inc.	$3,875 million	$990 million	$3,875 million/$990 million = 3.91 times
Mattel	$4,595 million	$834 million	$4,595 million/$834 million = 5.50 times