Homework Lance
TOPIC 3 DISCUSSION 1
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Question 1
An accounts receivable turnover is mainly an activity ratio that looks primarily into how many times a company can turn its accounts receivable into cash within a certain period (My accounting course, 2019). In simpler terms, it mainly refers to how business owners tend to compare the total sales to the actual customer payouts.
According to CSI Market (2021), Coca-Cola’s accounts receivable turnover for 2021 is 9.17, 9.86, and 10.2 for the first, second, and third quarters, which is greater than the average accounts receivable turnover for the beverage industry, 9.38. There has been an upward trend in the company’s accounts receivable turnover over the past financial years. With the company’s higher receivable turnover than the industry, it has a high receivable turnover, thus implying the company has an efficient collection of accounts and has an increased number of customers that pay up their debt quickly (DelVechio, 2020).
Comparing the company’s collection period, we notice that the days have decreased from 43 days during the 2020 financial year to 36 days (CSI Market, 2021). The collection period mainly entails the time taken for the company to receive owed money from its clients. In the recent financial year, it took the company 36 days to receive their clients’ debt. With this number, it isn’t that great as it means if the agreement was set for 30 days, then it means that they receive the debt six days later. The collection period would be significant if Coca-Cola tends to have a collection period of 60 days. A high ratio can also imply that the company has a conservative policy that tends to drive away borrowers who would not pay their debt in time. It’s always essential for companies to understand their receivable turnovers as this would ensure they tend to understand the cash they have in solving their short-term liabilities.
References
CSI Market. (2021). Coca-Cola Co Receivables Turnover Ratio (KO), from third quarter 2021 to third-quarter 2020 current and historical results, rankings, and more – CSIMarket. Csimarket.com. https://csimarket.com/stocks/singleEfficiencyrt.php?code=KO
DelVecchio, L. (2020, October 8). Accounts Receivable Turnover Ratio: What Is It, How to Calculate It, and How To Improve It. PRINERGY Software. https://planergy.com/blog/accounts-receivable-turnover-ratio/
My accounting course. (2019). Accounts Receivable Turnover Ratio | Formula | Analysis | Example. My Accounting Course. https://www.myaccountingcourse.com/financial-ratios/accounts-receivable-turnover-ratio
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