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14 December, 15:13

A company has a net income of $190,000, a profit margin of 9.40 percent, and an accounts receivable balance of $106,351. Assuming 72 percent of sales are on credit, what is the company's days' sales in receivables?

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  1. 14 December, 16:06
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    The company's days' sales in receivables is 22 days

    Explanation:

    In order to calculate the company's days' sales in receivables we would have to calculate first the total sales with the following formula:

    Total Sales = Net Income / Profit Margin

    = $190,000/9.4%=$2,021,276

    Hence, Credit Sales = $2,021,276*0.85 = $1,718,085

    Accounts receivable turnover ratio = Credit sales / Accounts Receivable

    = $1,718,085 / $106,351

    = 16.15485

    Therefore, Days sales in receivables = 365/16.15485 = 22.59 days

    The company's days' sales in receivables is 22 days
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