Question

Below are amounts (in millions) from three companies' annual reports. Beginning Accounts Receivable Ending Accounts Receivable Net SalesWalCo $1,795 $2,742 $320,427 TarMart 6,066 6,594 65,878 CostGet 609 645 66,963 Required:1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. (Do not round intermediate calculations. Enter your answers in millions. Round your "Average accounts receivable" and "Receivables turnover ratio" answers to one decimal place.)2.Which company appears most efficient in collecting cash from sales?a) WalCob) TarMartc) CostGetWalCo TarMart CostGet WalCo TarMart CostGet Net sales Receivables Turnover Ratio Average accounts receivable Receivables turnover ratio times times times Average Collection Period Average collection period days days days

Answer 1

Answer:

1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet.

• WalCo = 70.63
• TarMart = 10.41
• CostGet = 106.80

2.Which company appears most efficient in collecting cash from sales?

• CostGet because its average collection period is shortest

Explanation:

                                  Beginning Accounts    Ending Accounts    Net Sales

                                  Receivable                   Receivable

WalCo                         $1,795                            $2,742                  $320,427

TarMart                      $6,066                           $6,594                     $65,878

CostGet                        $609                              $645                     $66,963

accounts receivable turnover ratio = net sales / average accounts receivable

WalCo = $320,427 / [($1,795 + $2,742)/2] = 70.63

TarMart = $65,878 / [($6,066 + $6,594)/2] = 10.41

CostGet = $66,963 / [($609 + $645)/2] = 106.80

average collection period = 365 / accounts receivable turnover ratio

WalCo = 365 / 70.63 = 5.17 days

TarMart = 365 / 10.41 = 35.06 days

CostGet = 365 / 106.80 = 3.42 days