Question

Cola Inc. and Soda Co. are two of the largest and most successful beverage companies in the world in terms of the products that they sell and their receivables management practices. To evaluate their ability to collect on credit sales, consider the following rounded amounts reported in their annual reports (amounts in millions). Cola Inc. Soda Co. Fiscal Year Ended: 2015 2014 2013 2015 2014 2013 Net Sales $ 32,219 $ 27,690 $ 28,944 $ 54,838 $ 40,232 $ 40,251 Accounts Receivable 4,418 3,753 3,081 6,407 4,654 3,724 Allowance for Doubtful Accounts 42 49 45 138 84 64 Accounts Receivable, Net of Allowance 4,376 3,704 3,036 6,269 4,570 3,660 Required: Calculate the receivables turnover ratios and days to collect for Cola Inc. and Soda Co. for 2015 and 2014.

Answer 1

Answer :

Part 1 .The receivables turnover ratios:

                                                  2015                               2014

                                      Cola Inc     Soda Co       Cola Inc       Soda Co

Receivables Turnover 7.36times    8.75times     7.48times       8.80times

Part 2. The days to collect:

                                                 2015                                2014

                                      Cola Inc    Soda Co           Cola Inc       Soda Co

Days to Collect         49.57days    41.73days          48.83days       41.46days

Explanation :

Receivables Turnover = Sales/Trade Receivables

                                                 2015                                2014

                                      Cola Inc     Soda Co        Cola Inc     Soda Co

Receivables Turnover 32219/4376 54838/6269 27690/3704 40232/4570

                                     7.36times    8.75times     7.48times       8.80times

Days to Collect = Accounts Receivables / (Sales/365)

                                                   2015                                2014

                                     Cola Inc     Soda Co           Cola Inc        Soda Co

Days to Collect    4376/(88,27) 6269/(150,24)   3704/(75,86)   4570/(110,22)

                                49.57days    41.73days          48.83days       41.46days

Answer 2

a) The calculation of the accounts receivable turnover ratios for Cola Inc. and Soda Co. for 2015 and 2014 is as follows:

Accounts receivable turnover ratio =  Net sales / Average account receivables

                       Cola Inc.                                        Soda Co.

               2015            2014                           2015            2014

=             7.975          8.217                          10.119            9.777

 ($32,219/$4,040)  ($27,690/$3,370)  ($54,838/$5,420) ($40,232/$4,115)

b) The calculation of the accounts receivable days to collect for Cola Inc. and Soda Co. for 2015 and 2014 is as follows:

Accounts receivable collection period = (Accounts Receivable balance / Total net sales x 365 days)

                  Cola Inc.                                        Soda Co.

        2015            2014                           2015            2014

=  49.57 days    48.82 days              41.73 days         41.46 days

 ($4,376/$32,219 x 365)                   ($6,269/$54,838 x 365)            

($3,704/$27,690 x 365)                   ($4,570/$40,232 x 365)

What is the Accounts Receivable Turnover Ratio?

The accounts receivable turnover ratio is a financial measure of how efficient a company is able to collect on its credit sales.

While the Accounts receivable collection period or the days to collect is a financial measure that shows the number of days that it takes a company to collect on its credit sales.

Data and Calculations:

                                           Cola Inc.                                  Soda Co.

Fiscal Year Ended:   2015         2014        2013       2015        2014        2013

Net Sales             $32,219  $27,690  $28,944  $54,838  $40,232  $40,251 Accounts

Receivable              4,418      3,753        3,081      6,407       4,654      3,724

Allowance for

Doubtful Accounts     42           49             45         138             84           64

Accounts Receivable,

Net of Allowance 4,376       3,704       3,036     6,269        4,570     3,660

Average net accounts

receivables                  4,040         3,370                    5,420         4,115

The average net accounts receivable = Two years balances divided by 2.

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