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Take a LookAn 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 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 Items | 2016 | 2017 |
---|---|---|
Accounts Receivables | 270133 | 338594 | Net Sales | 2269471 | 2766859 |
Here is some more text
= | 270133 |
338594 / 365 |
= | 2269471 |
2766859 / 365 |
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.