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    Calculation of Receivables Turnover Ratio

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    I would like to know if I have correctly identified the correct dollar amounts from the attached financial statements for calculating Receivables Turnover ratio. One of the things I am not certain of is whether I should be working with both the Net Sales Revenues for Dec 31, 2009 and Dec 31, 2008, or with just the Dec 31 2009. If I am not pulling the correct figures, could you help me? This is not homework for submission but I am studying ratios and the financial statements for my final exam at the end of the course.
    I've tried searching the internet for these but I have been unable to find information that discusses the ratio in connection with financial statements like the ones attached. One of the requirements in doing the ratios is also knowing exactly which figures to pull from the financial statements, and of course sometimes you may need to combine two or more figures.

    For Receivables Turnover Ratio:
    Receivables Turnover = Net credit sales / Accounts Receivables:
    $33,000,000-$1,000,000/$32,120,000 = .99 or 1.00
    or
    $51,000,000-$1,000,000/$32,120,000= 1.556 or 1.56
    Am I correct on either calculation?

    ----see attached file for formatted Balance Sheet-----

    Balance Sheet
    ASSETS December 31, 2009
    Cash $20,900,000
    Marketable Securities $117,000,000
    Accounts Receivable $33,000,000
    Less: Allowance for Bad Debts $(880,000)
    Net Accounts Receivable $32,120,000

    Inventory
    Raw Materials $2,000,000
    Work-in-process $1,000,000
    Finished Goods $5,000,000
    Inventory Purchased for Resale $24,000,000
    Total Inventory $32,000,000

    Plant, Property and Equipment $6,700,000
    Less: Accumulated Depreciation $(320,000)
    Net Plant, Property and Equipment $6,380,000

    Prepaid Expenses $200,000

    Goodwill and Other Purchased Intangibles $28,000,000
    Less: Amortization $(700,000)
    Net Goodwill and Other Purchased Intangibles $27,300,000

    Total Assets $235,900,000

    LIABILITIES AND OWNERS' EQUITY
    Accounts Payable $22,000,000
    Accrued Advertising $11,800,000
    Other Liabilities and Accrued Expense $1,400,000
    Current Portion of Long-Term Debt $2,300,000

    Long Term Debt $57,400,000

    Preferred Stock, $100 par value per share,
    100,000 authorized, 0 shares issued and outstanding $0

    Common Stock, $1 par value per share,
    250,000,000 shares authorized, 13,000,000 shares
    issued, 12,900,000 outstanding $13,000,000

    Additional Paid-in-Capital in excess of par value, Common Stock $117,000,000

    Treasury Stock $(1,000,000)

    Retained Earnings (less Cash Dividends Paid) $12,000,000 $11,000,000

    Total Liabilities and Owner's Equity $235,900,000
    ________________________________________

    Income Statement
    December 31, 2009 December 31, 2008
    Sales Revenues $51,000,000 $10,300,000
    Less: Sales Returns $(1,000,000) $(300,000)
    Net Sales Revenues $50,000,000 $10,000,000
    Less: Cost of Goods Sold $(9,000,000) $(4,000,000)
    Gross Profit $41,000,000 $6,000,000

    Operating Expenses:
    Advertising and Sales $(26,000,000) $(3,000,000)
    Depreciation $(160,000)
    Salaries and Wages $(1,700,000) $(1,400,000)
    Product Development $(4,000,000) $(1,200,000)
    Merger and Acquisition Related Costs, including
    Amortization of Goodwill and Other Intangibles $(700,000) $0
    Total Operating Expenses $(32,560,000)

    Income from Continuing Operations Before Income Taxes $8,440,000

    Less: Income Taxes at 35% $(2,954,000)
    Income from Continuing Operations $5,486,000

    Discontinued Operations:
    Income from Operations of Discontinued Division
    (less applicable income taxes) $350,000
    Loss on Disposal of Discontinued Division
    (less applicable income taxes) $(150,000)
    +Total Gain from Discontinued Operations $200,000

    Extraordinary Items:
    Loss from fire (less applicable income taxes) $(200,000)
    Net Income $5,486,000.

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    https://brainmass.com/business/financial-ratios/calculation-receivables-turnover-ratio-524328

    Attachments

    Solution Preview

    See the attached file.

    To calculate the accounts receivable turnover ratio, we divide net credit sales by the amount of average accounts receivable. There is no way to calculate A/R turnover without knowing the beginning and ending balance for A/R. On the sheets you have attached, we see that A/R on 12-31-09 is $33,000,000. We also need the balance sheet for 12-31-2008 to determine the amount. Here is our 1st calculation after obtaining the information:

    33,000,000 + AR on 12-31-08 = X
    X / 2 = average A/R.

    We add the two numbers together and then divide them by 2. This gives us the average amount of A/R. We then divide net sales (50,000,000) by the total average A/R. If we're working on 2008, we would add 2008 A/R from the balance sheet to 2007 AR from the balance sheet, divide by 2, and then ...

    Solution Summary

    This solution shows how to properly calculate the accounts receivables turnover ratio. Solution includes a Word-formatted attachment and 2 references.

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