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

An average collection period of 90 days implies that the firm collects its receivables every 90 days, which is about 25% of the year (365 days). Thus, it is providing financing for approximately 25% of its annual sales.

Which One of the Following Statements Is Most Likely Correct