Asked by Donna Gentry on Jun 15, 2024
Verified
Which of the following ratios increases when cash is collected on an account receivable?
A) Current.
B) Quick.
C) Return on assets.
D) Receivable turnover ratio.
Receivable Turnover Ratio
A financial metric that measures how efficiently a company collects cash from its customers by comparing net credit sales to average accounts receivable.
Return On Assets
A profitability ratio that measures how efficient a company is at using its assets to generate earnings, calculated as net income divided by total assets.
- Comprehend the significance of liquidity ratios in evaluating an entity's short-term financial stability.
Verified Answer
AU
Andrea UreñaJun 19, 2024
Final Answer :
D
Explanation :
The receivable turnover ratio measures how quickly a company collects its accounts receivable. A higher receivable turnover ratio means that the company is collecting its accounts receivable more quickly, which indicates better management of its cash flow. Therefore, when cash is collected on an account receivable, the receivable turnover ratio increases.
Learning Objectives
- Comprehend the significance of liquidity ratios in evaluating an entity's short-term financial stability.