Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?
A)its average daily sales are low.
B)its average daily sales are high.
C)its current ratio will be high.
D)it is providing financing for approximately 25% of its annual sales.

Question

Quizplus · Accepted Answer

The average collection period of 90 days means the firm takes about 90 days to collect its receivables. This implies it is effectively providing financing for its sales for about a quarter of the year (90/365 ≈ 25%), hence option D is correct. Options A, B, and C do not directly relate to the average collection period's implications on financing or sales volume.

Which One of the Following Statements Is Most Likely Correct