Question

Company A and Company B operate in the same industry and region. Compared to Company B, Company A has a low receivables turnover ratio and a correspondingly high average collection period. From this information, we can conclude that Company A is managing its receivables better than Company B. T/F

Answer 1

The answer is false

Step-by-step explanation:

A high receivables turnover ratio means either that a company only recognise cash basis transactions or collection of accounts receivable is efficient and easy.

A low receivables turnover ratio ratio means the company is not collecting its accounts receivable on time which might lead to bad debt.

Average collection period is important for business. A lower average collection period is better than a higher average collection period.