CFA Practice Question

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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.
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