Ratio Analysis
Collection Ratio
= |
Accounts Receivable |
|
(Revenue/365) |
This indicates the average
number of days it takes a company to collect on invoices.
| Things to remember |
- A high ratio indicates that the
company is having problems getting paid for services
or products.
- The ratio is sometimes seasonally
affected, rising during busy seasons and falling during
the off-season. To account for this seasonality, the
average accounts receivable ((beginning + ending accounts
receivable)/2) could be used instead.
|
|
|
[Click
on the buttons above to see the financial statements] |
| ForCory's Tequila Co. |
| $1,242 |
=
37.3 |
| ($12,154/365) |
Collection Ratio Analysis:
This ratio could perhaps be renamed as the "Thug Ratio",
it explains the average time it takes to receive payment on
sales. The "Thugs" at Cory's Tequila Co. seem to be
doing their job quite well, on average it takes 37 days for
customers to clear their invoices. This is quite reasonable
since most companies pay all of their bills on a monthly
basis. If we were really picky we could redo this calculation
using only credit sales since cash purchases are received immediately.
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