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An example of Average Collection Period

Here, we will go through an average collection period example, using sample financial statement data, and discuss the results.

average collection period ratio example analysis

Average Collection Period Example

Since we know from theĀ average collection period definition that we need Accounts Receivables and Net Sales values

Here are some values for a fictional company TestCorp Inc.

Required Items20162017
Accounts Receivables270133338594
Net Sales22694712766859

Here is some more text

Average Collection Period
2016
2017
= 270133
338594 / 365
= 2269471
2766859 / 365

= 43.5 days
= 44.7 days

Average Collection Period Analysis of Results

From the above example calculation, it took about 44 days on average for the company to collect its accounts receivable in cash during 2016. While in 2017, it took about 45 days to collect accounts receivables. Since the average collection period has increased from 2016 to 2017, this indicates more operational efficiency in 2016 as it’s taken the company longer to collect on its accounts receivables using its available cash from sales.