Two important ratios that help in understanding the company's effectiveness in managing receivables are the receivables turnover ratio and the average collection period.

Question

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The statement is true. The receivables turnover ratio measures how many times a company collects its average accounts receivable balance during a specific time period, while the average collection period measures the average number of days it takes for a company to collect its accounts receivable. Both ratios provide insights into a company's ability to manage its receivables effectively.

Two Important Ratios That Help in Understanding the Company's Effectiveness