|
|
| Collection
Ratio |
= |
Accounts
Receivable |
|
(Revenue/365) |
|
This
indicates the average number of days it takes a company to collect
unpaid 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 image(s) above to see the financial statements] |
For
Cory'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 clear 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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