Mizan Corporation, a manufacturing company, prepares its financial statements annually. During the last month of the fiscal year, Mizan experiences a significant surge in sales. The sales team closes several large deals, contributing to a substantial increase in the overall revenue for the year. However, upon closer examination, you notice that a considerable portion of these sales occurred very close to the end of the reporting period.

 Ali, the CEO of Mizan has tasked you as a financial analyst to analyze the operation ratios for $2023,$ comparing them with previous periods and industry benchmarks. Your initial focus is on the account receivables turnover ratio, a key financial metric that measures how efficiently a company manages its receivables by comparing net credit sales to the average accounts receivable balance. Your calculation shows a significant different in this ratio between $2023$ and previous years. Ali asks you the reason of this difference and how might the timing of these large sales at the end of the reporting period impact the account receivables turnover ratio? 

Discuss the potential distortions that can arise in interpreting the efficiency of receivables management when significant sales occur late in the fiscal year. 

 

Further, he heard about the operational cycle and the importance of knowing this ratio. Please define the operational cycle and its components. How does the timing of sales, particularly those occurring at the end of the reporting period, influence the length of the operational cycle? 

Discuss strategies Mizan Corporation could employ to manage its operational cycle more effectively in light of the observed sales patterns.

 

Please provide a memo for Ali and discuss his challenges with recommendations."

Answer rating: 100% (QA)

Memo To Ali CEO of Mizan Corporation Subject Analysis of Account Receivables Turnover Ratio and Operational Cycle Date Insert Date Dear Ali Upon analyzing the financial performance of Mizan Corporatio... View the full answer