Question

What factors might explain why these two companies, which operate in similar markets, have different accounts receivable turnover ratios?

Answer 1

Accounts receivable turnover ratio =credit sale/ average accounts receivable.

These two components affects accounts receivable turnover ratio.

Factors that may affect accounts receivable turnover ratios of two companies in operating in similar market are as follow.

Company having higher accounts receivable turnover ratio means company operates on cash basis. and the company which have lower ratio it implies that it offer more sale on credit.

company having higher accounts receivable ratio may be giving less credit period as compare to company lower accounts receivable turnover ratio.

Company having higher accounts receivable ratio may have efficient collection process as compare to company lower accounts receivable turnover ratio.

answered by: anonymous