Question

A company has net income of $188,000, a profit margin of 7.1 percent, and an accounts...

A company has net income of $188,000, a profit margin of 7.1 percent, and an accounts receivable balance of $127,370. Assuming 70 percent of sales are on credit, what is the company’s days’ sales in receivables? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Answer #1

Calculate sales of the company as follows:

Profit margin = Net income / Sales

7.1% = $188,000 / Sales

Sales = $2,647,887.323943660

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Calculate the credit sales as follows:

Credit sales = sales * Percentage

= $2,647,887.323943660 * 70%

= $1,853,521.12676056

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Calculate the number of days in accounts receivables as follows:

Number of days = (365* Accounts receivables) / Credit sales

= (365 * $127,370) / $1,853,521.12676056

= 25.08 days.

Therefore, the number of days in receivables is 25.08 days.

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