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7. Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?
8. What are three quantitative measures that can be applied to the collection policy of the firm?
9. What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?
10. A borrower is often confronted with a stated interest rate and an effective interest rate. What is the difference, and which one should the financial manager recognize as the true cost of borrowing?
11. What is the difference between pledging accounts receivable and factoring accounts receivable?
12. What is meant by hedging in the financial futures market to offset interest rate risks?
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7. Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?
The bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable because there is it gives only a general overview of how the firm manage their accounts receivable. Therefore, the firm should also consider the aging schedule, debtors turnover, accounts receivable to revenue ratio, and percentage of debts collected within terms of trade.
8. What are three quantitative measures that can be applied to the collection policy of the firm?
The first quantitative measure is the aging schedule which will break down a firm's receivables by age of account. Aging schedules cannot be constructed from the type of summary date reported in financial statements. They must be developed from the firm's accounts receivable ledger.
The second quantitative measure is the debtors turnover. This ratio measures the average period for which sales revenue will be held in accounts receivable. This measures the efficiency and effectiveness of receivables collection.
The third ...
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