Question

Paul & Griffon manufactures and markets many products you use every day. In 2016, sales for the company were $85,500 (all amounts in millions). The annual report did not report the amount of credit sales, so we will assume that all sales were on credit. The average gross profit percentage was 49.7 percent. Account balances for the year follow:

	Beginning			Ending
Accounts receivable (net)	$	6,400		$	6,800
Inventory		7,180			7,200

Required:

1. Compute the following turnover ratios.

2. By dividing 365 by your ratios from requirement 1, calculate the average days to collect receivables and the average days to sell inventory.

Answer 1

>> Average Accounts Receivable = ( $ 6,400 + $ 6,800 ) / 2

>> Average Accounts Receivable = $ 6,600

>> Average Inventory = ( $ 7,180 + $ 7,200 ) / 2

>> Average Inventory = $ 7,190.

>> Cost of Goods sold = $ 85,500 * ( 100 - 49.7 ) %

>> Cost of Goods sold = $ 43,007.

>> Average days to collect receivables = ( 365 * Average Accounts Receivable ) / Cost of Goods sold

>> Average days to collect receivables = ( 365 * $ 6,600 ) / $ 43,007

>> Average days to collect receivables = 56 days

>> Average days to Sell Inventory = ( 365 * Average Inventory ) / Cost of Goods sold

>> Average days to Sell Inventory = ( 365 * $ 7,190) / $ 43,007

>> Average days to Sell Inventory = 61 Days