Waltz Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/30. What does this ratio tell you about Waltz Company?
At an accounts receivable turnover of 10 times per year, Waltz's receivables are outstanding approximately 36 days prior to collection (360/10 days). Given that Waltz's terms are 2/10, n/30, one would expect customers to pay within 30 days. Customers should pay within ten days to obtain the discount of 2%. Waltz needs to make more efforts to collect its receivables given its current credit terms.
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