Question

For your organization, the Average Collection Period (also known as "Days in Patient Accounts Receivable") is 80 days and Total Asset turnover is 1.5 times. If the industry average is 92 for ACP and 1.2 for TA turnover, do these ratios indicate that your organization is in a relatively strong financial position?

		Yes, they both indicate that my organization is in a relatively strong financial position.
		Only ACP indicates that my organization is in a relatively strong financial position.
		No, they both indicate that my organization is in a relatively weak financial position.
		Only TA turnover indicates that my organization is in a relatively strong financial position.

Answer 1

Average collection period indicates how quickly the company is able to recover money from its debtors or receivables. So, the lower the average collection period the better it is for the company. Since, this ratio is lower than the industry average, it indicates that our organization is in a relatively strong financial position.

Total Asset turnover indicates the efficiency of the fixed assets of the company. The higher the ratio, the better the company's financial position. Since this ratio is higher than the industry average, it indicates that our organization is in a relatively strong position.

Therefore, both indicates that the organization is in a relatively strong financial position. (Option 1)