The following data are taken from the comparative balance sheets of Grayling Company. Compute and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How is the company doing in relation to its competitors?
What will be an ideal response?
| ? | Year 2 | Year 1 |
| Accounts receivable, net | 180,230 | 220,450 |
| Net sales | 1,500,750 | 1,495,600 |
Accounts Receivable Turnover = Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $1,500,750/[(180,230 + 220,450)/2] = 7.5 times
Grayling's turnover is the same as the industry average. The company is doing the same as competitors in receivables turnover for the year. The turnover should also be compared with prior years' results for the company to determine if the company is making improvement internally.
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