Question

A company has net income of $187,000, a profit margin of 9.40 percent, and an accounts...

A company has net income of $187,000, a profit margin of 9.40 percent, and an accounts receivable balance of $106,283. Assuming 64 percent of sales are on credit, what is the company's days' sales in receivables?

10.97 days

39.87 days

30.47 days

19.50 days

31.99 days

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Homework Answers

Answer #1

Answer : Correct option is 30.47 days .

Explanation :

Days' sales in receivables = 365 days / Receivable Turnover ratio

Note : Assumed 365 days in a year

Receivables turnover ratio = Net Credit sales / Accounts receivables

For the purpose of calculation of Net credit sales we need to find the total sales

Total Sales = Net Income / Profit margin

= 187000 / 0.0940

= 1,989,361.70212

Credit sales = 64% of total Sales

= 64 % * 1989361.70212

= 1,273,191.48935

Receivables turnover ratio = 1273191.48935 / 106283

= 11.9792581066

Days' sales in receivables = 365 days / Receivable Turnover ratio

= 365 days / 11.9792581066

= 30.4693326374 or 30.47 days

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