Evaluating Comasarsy Efficiency
One of the ways a company’s financial statement can be used is to evaluate a company’s efficiency. This includes, for example, evaluating how well the company controls its costs. In the BusinessWeek article, “How Efficient Is That Company?” (December 23. 2002. by Susan Scherreik), the importance of how often a company turns over its receivables and inventories is explained: “In today’s tough business climate, many companies succeed by running financially efficient operations. That means they keep costs down—and reduce the need to borrow—by trimming their inventories and speeding up collections of what’s owed them.” The article goes on to say that you can obtain the necessary information to determine these aspects of a company from the Securities and Exchange Commission’s Web site.
Instructions
a. Explain how a company would benefit from collecting its receivables from customers quickly rather than allowing them to remain "outstanding" (uncollected) for a long period of time.
b. Explain how a company would benefit from selling its inventory rapidly rather than allowing it to accumulate for long periods of time before selling it.
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