A firm has $42,900 in receivables and $211,800 in total assets. The total asset turnover rate is 1.45 and the profit margin is 4.2 percent. How long on average does it take the firm to collect its receivables?
A) 7.16 days
B) 9.45 days
C) 11.68 days
D) 31.25 days
E) 50.99 days

Question

Quizplus · Accepted Answer

The total asset turnover rate is calculated as Sales/Total Assets. Given the turnover rate of 1.45, Sales = 1.45 * $211,800 = $307,110. The receivables turnover is Sales/Receivables = $307,110 / $42,900 ≈ 7.16. The average collection period is 365/Receivables Turnover = 365/7.16 ≈ 50.99 days.

A Firm Has $42,900 in Receivables and $211,800 in Total