- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 1. Cash Conversion Cycle
CFA Practice Question
Which of following equations correctly specifies the level of the firm's receivables balance?
II. Average collection period / Average daily sales
III. Average daily sales X Average collection period
IV. Credit sales / Accounts receivable turnover
I. Average annual sales / Average collection period
II. Average collection period / Average daily sales
III. Average daily sales X Average collection period
IV. Credit sales / Accounts receivable turnover
A. II and IV
B. I and IV
C. III and IV
User Contributed Comments 7
| User | Comment |
|---|---|
| jamyandy | I have some difficulty twisting the relevant formula to get the Accounts Receivable to be the subject. I need to understand what is the receivables balance being referred to? Is it the Average Receivables or the total Receivables? |
| StanleyMo | hmm, averages daily sales = 5millions, average collection period if let say 15 days, we have receivables of 45millions. |
| boddunah | receivable balance is same as receivables outstanding.analystnotes was refering to denominator of Account Receivable T/O . A/R T/O = credit sales/ave.receivables |
| ranjansahay | are all "average daily sales" on credit? |
| poomie83 | yes that is the assumption as most businesses give the purchaser net trading days to pay for the sales |
| gill15 | III. [(Sales) / 365] * [(365 *Avg Receivables)/Sales) = Avg Receivables |
| MathLoser | Ugh, they better use "average daily credit sale". Using "average daily sale" alone is wrong. |