Vanity Press, Inc., has annual credit sales of $1,600,000 and a gross profit margin of 35 percent.
Question:
a. If the firm wishes to maintain an average collection period of 50 days, what level of accounts receivable should it carry?
b. The inventory turnover for this industry averages six times. If all of Vanity’s sales are on credit, what average level of inventory should the firm maintain to achieve the same inventory turnover figure as the industry?
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
a 50 days Accounts Receivable1600000365 days 50 day...View the full answer
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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