It is an activity ratio which determines a company’s efficiency in collecting their receivables on yearly basis. It is computed by dividing the credit sales and the average accounts receivable during given period of time.
Average Collection Period:
The period during which a company is able to collect from its accounts receivables is called an average collection period. It is computed by dividing the accounts receivable turnover ratio by the number of days during the year.
Inventory Turnover:
It is an efficiency ratio which measures how effective a company has been in selling its inventory during particular time.
Average Sale Period:
It is a ratio which measures the period of time taken by a company to sell its inventory. It is computed by dividing the number of days in a year with average inventory during a given period.
Operating Cycle:
It is an average period within which a company is able to turn its cash incurred on the production of goods into cash collected from the customer as sales revenue.
Total Asset Turnover:
The ratio which indicates a company’s efficiency in generating sales from its assets. It is calculated by dividing the net sales with the average total assets of the company.
: Compute the following financial data for this year:
1. Accounts Receivable Turnover
2. Average Collection Period.
3. Inventory Turnover
4. Average Sale Period
5. Operating Cycle
6. Total Asset Turnover
Explanation of Solution
1. Computation of Accounts Receivable turnover
2. Computation of Average Collection Period
3. Computation of Inventory Turnover
4. Computation of Average Sale Period
5. Computation of Operating Cycle
6. Computation of Total Assets Turnover Ratio
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Chapter 14 Solutions
Loose Leaf For Introduction To Managerial Accounting
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- Following are the financial statements of AB Ltd. for 2010. From the aforementioned table, calculate the following: 1. Current ratio 2. Liquid ratio 3. Receivables turnover ratio and collection period 4. Inventory turnover and holding period 5. Fixed assets turnover 6. Total assets turnover 7. Debt ratio 8. D/E ratio 9. Interest coverage ratio 10. PAT margin 11. ROA 12. ROE 13. EPS 14. D/P ratio 15. P/E ratio 16. Book value per sharearrow_forwardRequired: Prepare a schedule of profit distribution under the following independentagreements on the division of profits:1. In the ratio of investments at the beginning or the fiscal period.2. In the ratio of average capitals, investments and withdrawals are to be considered as madeat the beginning of the month if made before the middle of the month, and are to be consideredas made at the beginning of the following month if made after the middle of the month.3. Interest of 24% on average capitals, salaries to Castro and Diaz of P36,000 and P24,000,respectively, and any balance equally. Investments and withdrawals are to be considered asin (2).4. Allowance to Castro of a bonus of 25% of the net profit after bonus, interest of10% to beallowed on the excess of the average investment (simple average) of one partner over that ofthe other, and any balance in the ratio of 3.2 to Castro and Diaz, respectively.5. Salaries of P3,000 and P2,000 a month to Castro and Diaz, respectively provided…arrow_forwardAsset Efficiency Ratios Selected financial statement numbers for Rutherford Company follow. Required: 1. Using this information, calculate Rutherfords receivable turnover ratio (rounded to two decimal places.) 2. Using this information, calculate Rutherfords asset turnover ratio (rounded to two decimal places) and also convert the ratio into days (rounded to the nearest whole day).arrow_forward
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