The average number of days to collect an account receivable is computed as follows:
TIP: A ratio is an expression of the relationship of one item (or group of items) to a second item (or group of items). It is determined by dividing the first item (amount) by the second item (amount). The relationship may be expressed either as a percentage, a rate, or a simple proportion.
For example: If A is $100,000 and B is $25,000 the ratio of A to B can be expressed in several ways, such as the following:
|4 to 1||$4.00|
The way in which the ratio is expressed depends on the particular ratio. If it is the current ratio, it would likely be expressed as a proportion (4:1 or 4 to 1) or as a rate (4 times). If it is the debt to stockholders' equity ratio, it would likely be expressed as a percentage (400%).
TIP: In this chapter we look at the financial ratio used to assess the liquidity of receivables--the receivables ...