If XYZ’s receivables turnover is 4x, what does that mean?
A. XYZ’s total sales are rotated four times a year.
B. XYZ has a really good receivables turnover rate.
C. XYZ is able to collect its receivables every 90 days, or 4 times a year.
D. XYZ generates four times as much sales through receivables than sales through cash.
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If accounts receivable stays the same, and credit sales go up
A. the average collection period will go up.
B. the average collection period will go down.
C. accounts receivable turnover will decrease.
D. the average collection period will go down and accounts receivable turnover will decrease.
A quick ratio that is much smaller than the current ratio reflects
A. a small portion of current assets is in inventory.
B. a large portion of current assets is in inventory.
C. that the firm will have a high inventory turnover.
D. that the firm will have a high return on assets.
An increasing average receivables collection period indicates
A. the firm is generating more income.
B. accounts receivable are going down
C. the company is becoming more efficient in its collection policy.
D. the company is becoming less efficient in its collection policy
Which of the following is a potential problem of utilizing ratio analysis?
A. Trends and industry averages are historical in nature.
B. Financial data may be distorted due to price-level changes.
C. Firms within an industry may not use similar accounting methods.
D. All of the options.
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