Question

In: Finance

Sigma Limited has sales of $100 million, cost of goods sold of $60 million, assets of...

Sigma Limited has sales of $100 million, cost of goods sold of $60 million, assets of $120 million, accounts receivables of $20 million and inventory of $30 million. Calculate days' sales in receivables ratio.

Solutions

Expert Solution

Solution:

(a) When the no. of days in a year is taken as 360 days

The formula for calculating the days’ sales in receivables ratio is

= ( Accounts receivable / Sales ) * 360

As per the information given in the question we have

Accounts receivable = $ 20 million   ;   Sales = $ 100 million

Applying the above information in the formula we have

= ( $ 20 million / $ 100 million ) * 360

= 0.20 * 360

= 72 days

Thus the days’ sales in receivables ratio = 72 days ( When a year = 360 days is used )

(b) When the no. of days in a year is taken as 365 days

The formula for calculating the days’ sales in receivables ratio is

= ( Accounts receivable / Sales ) * 365

As per the information given in the question we have

Accounts receivable = $ 20 million   ;   Sales = $ 100 million

Applying the above information in the formula we have

= ( $ 20 million / $ 100 million ) * 365

= 0.20 * 365

= 73 days

Thus the days’ sales in receivables ratio = 73 days ( When a year = 365 days is used )


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