Assessing How Well Companies Manage Their Receivables:

Assume that Hickory Company has the following data related to its accounts receivable:
2005
Net sales.. . $1,425,000

2006.
Net sales... $1,650,000

2005
Net receivables:
Beginning of year.. . 375,000
End of year.. . 420,000

2006
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?

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?