Question

Accounts Receivable Analysis

Xavier Stores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (in millions):

	Xavier		Lestrade
Sales	$240,900		$335,800
Credit card receivables-beginning	41,653		66,638
Credit card receivables-ending	34,775		51,306

a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round answers to one decimal place. Assume 365 days a year.

	Xavier		Lestrade
1. Accounts receivable turnover
2. Number of days' sales in receivables		days		days

b. Xavier’s accounts receivable turnover is ___ than Lestrade’s. The number of days' sales in receivables is ___ for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables __ quickly than Lestrade. As a result, it takes Xavier ___ time to collect its receivables.

Answer 1

a) Calculate account receivable turnover and days in sale

	Xavier	Lestrade
Account receivable turnover	240900/38214 = 6.3	335800/58972 = 5.7
Number of days sales in receivables	365/6.3 = 57.9 Days	365/5.7 = 64.0 Days

b) Xavier's accounts receivable turnover is high than Lestrade's. The number of days sales in receivable is lower for Xavier than for Lestrade. These difference indicate that Xavier is able to turn over its receivable more quickly than Lestrade. As a result it takes Xavier lower time to collect its receivables