- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 11. Financial Analysis Techniques
- Subject 2. Activity Ratios
CFA Practice Question
True or False?
If a firm offers its credit customers terms of 2/10, n/30 and its accounts receivable turnover rate is 5.0 times, it is managing its accounts receivables well.
Correct Answer: False
A turnover rate of 5 converts to an average number of days to collect accounts receivable of 73 days (365/5), far outside of their credit terms.
User Contributed Comments 5
| User | Comment |
|---|---|
| Alastair | can someone clarify what 2/10, n30 signifies? |
| Tomm | 2% discount if paid in 10 days. If not then payment due in 30 days. |
| haarlemmer | Thanks Tomm |
| todolist | Payments are due within 30 days, however it takes 73 days to collect recevables, therefore not managing efficiently. |
| mhanazi123 | Tomm your explanasion has helped me as well.thanks. |