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    alazo's Avatar
    alazo Posts: 9, Reputation: 1
    New Member

    Feb 20, 2008, 11:58 AM
    Assessing How Well Companies Manage Their Receivables:
    Assessing How Well Companies Manage Their Receivables:

    Assume that Hickory Company has the following data related to its accounts receivable:
    Net sales.. . $1,425,000

    Net sales... $1,650,000

    Net receivables:
    Beginning of year.. . 375,000
    End of year.. . 420,000

    Net receivables:...
    Beginning of year.. . 333,500
    End of year.. . 375,000

    Use these data to compute accounts receivable turnover ratios and average collection periods
    For 2005 and 2006. Based on your analysis, is Hickory Company managing its receivables
    Better or worse in 2006 than it did in 2005?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
    Uber Member

    Feb 20, 2008, 08:40 PM
    You should have the equations in your book for these ratios. Try looking them up and see if you can solve the ratios first. If you're confused about some aspect of the equations, please state what you are confused about. If you want to post your answers to be check, feel free.

    The turnover is how many times the receivables get paid off during a year. An easy example is 12. That's recievables getting paid off each month, 12 times per year. Or, if you get 6, the receivables get paid off 6 times a year, or every two months. Remembering that receivables is how much your customers owe to you, do you think you'd want a higher or lower number?

    Aveage collection period is like the opposite of turnover. The collection period in the above are 30 days (once a month) and 60 days (once every two months.) It's stating it as the number of days it takes to receive the money on average. Again, do you think you'd want a higher or lower number for this?

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