Accounts receivable analysis Xavier Stores Company and Lestrade Stores Inc. are

ID: 2417459 • Letter: A

Question

Accounts receivable analysis

Xavier Stores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (all numbers are in millions):

Xavier Lestrade

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Merchandise sales $8,500,000 $4,585,000

Credit card receivables-beginnings

820,000 600,000

Credit card receivables-ending 880,000 710,000

a. Detemine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round to one decimal place.

b. Compare the two companies with regard to their credit card policies.

Explanation / Answer

Account receivable turonver = Merchandise sales / Average credit card receivable

Xavier Average credit card recievables = (820,000+880,000)/2 = $850,000

Lestrade average receivables = (600,000+710,000)/2 = $655,000

Xavier = $8,500,000/ 850,000 = 10 times

Lestrade = 4,585,000/ 655,000 = 7 times

(b) Number of days sales in recievable = 360/ accounts receivable turnover

Xavier = 360/10 = 36 days

Lestrade = 360/7 = 52 days

(2)Xaviers has a right credit policy because of which its sales in on lower side but we see that its recovery period is good which shows that it does not give credit to everyone.

On the other hand Lestrade's credit policy seems to be liberal so that it can increase sale but we see that its recoevery time is on higher side.