Bill Raymond is the CEO of the Drummond Group, a consulting group in the Carolinas. Sales have increased at least five percent every year for the past seven years. Unfortunately, the company has hit a slump this year, and revenue is far less than anticipated. However, in order to receive his performance bonus, Bill must show a sales increase of at least seven percent. When the financials are released, sales have increased by exactly seven percent. Which of the following ratio analyses would be most helpful in revealing that Bill included bogus sales in the company's financials?

Question

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The receivable turnover ratio measures how efficiently a company collects its outstanding accounts receivable. If Bill included bogus sales in the financials, then the company's accounts receivable may be inflated, and the receivable turnover ratio would be lower than expected. This would be a red flag for fraudulent activity. The other ratios listed would not necessarily reveal the inclusion of bogus sales.

Bill Raymond Is the CEO of the Drummond Group, a Consulting