Question

On average how long did it take for the firm to collect from its customers in 2015? On average how long did it take for the firm to collect from its customers in 2015?

Balance Sheet and Income Statement
ASSETS	2015	2014
CASH AND MARKETABLE SECURITIES	29,000	25,000
ACCOUNTS RECEIVABLE	116,000	100,000
INVENTORIES	145,000	125,000
CURRENT ASSETS	290,000	250,000
GROSS PLANT AND EQUIPMENT	362,000	350,000
LESS: ACCUMULATED DEPRECIATION	130,000	100,000
NET FIXED ASSETS	232,000	250,000
TOTAL ASSETS	522,000	500,000
LIABILITIES AND EQUITY
ACCOUNTS PAYABLE	90,480	78,000
ACCRURALS	34,800	30,000
NOTES PAYABLE	25,420	34,000
CURRENT LAIBILITIES	150,700	142,000
LONG TERM DEBT	145,000	140,000
TOTAL LIABILITIES	295,700	282,000
COMMON STOCK ($1.00 par)	150,000	150,000
RETAINED EARNINGS	76,300	68,000
TOTAL OWNER’S EQUITY	226,300	218,000
TOTAL LIABILITIES AND EQUITY	522,000	500,000
INCOME STATEMENT	2015	2014
NET REVENUES & SALES (100,000 UNITS)	812,000	700,000
COST OF GOODS SOLD	522,000	450,000
GROSS PROFIT	290,000	250,000
FIXED OPERATING EXPENSES (pre depreciation)	174,200	151,000
EBITDA Earnings Before Interest, Taxes, Depreciation & Amortization	115,800	99,000
DEPRECIATION EXPENSE	30,000	25,000
OPERATING INCOME (EBIT)	85,800	74,000
INTEREST	14,500	14,000
INCOME BEFORE TAXES (EBT)	71,300	60,000
INCOME TAXES (40%)	28,520	24,000
NET INCOME	42,780	36,000
Dividends	34,480	28,500
Retained Earnings	8,300	7,500
NUMBER OF SHARES OUTSTANDING	50,000	50,000
Dividends per share	0.6896	0.57

Industry Ratios
Current	1.8 x		Fixed Asset Turnover	4.0x		Net Profit Margin	8.7%
Quick	1 x		Total Asset Turnover	1.3x		ROA	12.6%
Inventory Turnover	3.4x		Debt Ratio	45.0%		ROE	17.2%
DSO	42.1 days		TIE	6.5x		Price/Earnings	13.0x
ROIC	14.5%					Market/Book	2.0x

Answer 1

The days required for the firm to collect from its customers in 2015 is the Average Collection Period (Days Sales Outstanding)

Average Collection Period (Days Sales Outstanding) is calculated by using the following formula

Average Collection Period (Days Sales Outstanding) = Average Accounts Receivables / Sales per day

Average Receivables = (Accounts Receivables at the beginning + Accounts Receivables at the end) / 2

= ($116,000 + $100,000) / 2

= $216,000 / 2

= $108,000

Sales per day = Total Revenue / 365 Days

= $812,000 / 365 Days

= $2,224.66 per Day

Therefore, the Average Collection Period (Days Sales Outstanding) is calculated by using the following formula

= $108,000 / $2,224.66

= 48.55 Days

“Hence, the it will take 48.55 Days for firm to collect from its customers in 2015”