Question

BTN 7-9 Key information from Samsung (Samsung.com), which is a leading manufacturer of consumer electronic products, follows.

W in millions	Current year	One year prior	Two years prior
Accounts receivables Net	W25,168,026	W24,694,610	W24,998,532
Sales	200,653,482	206,205,987	228,692,667

1. Compute its accounts receivable turnover for the current year.

2. How long does it take on average for Samsung to collect receivables?

3. Refer to BTN 7-2. How does Samsung compare to Apple and Google in terms of its accounts receivable turnover and its collection period?

Short answer

1. Accounts receivables turnover:8.04.
2. Average collection period:45.39 days.
3. The Samsung Company is operating more efficiently than Google, but it seems to be less efficient than Apple.

Step-by-step solution

Definition of Accounts Receivables

A current asset account reflects the credit sales of a company, for which payments are still due, known as accounts receivables. It is reported as a net of bad debt expenses on the balance sheet.

Accounts receivables turnover for the current year

$\begin{array}{rcl}\mathrm{Accounts}\mathrm{receivables}\mathrm{turnover}& =& \frac{\mathrm{Net}\mathrm{credit}\mathrm{sales}}{\mathrm{Average}\mathrm{accounts}\mathrm{receivables}}\\ & =& \frac{\mathrm{W}200,653,482}{\frac{\mathrm{W}25,168,026+\mathrm{W}24,694,610}{2}}\\ & =& \frac{\mathrm{W}200,653,482}{\frac{\mathrm{W}49,862,636}{2}}\\ & =& 8.04.\end{array}$

Average collection period

$\begin{array}{rcl}\mathrm{Average}\mathrm{collection}\mathrm{period}& =& \frac{365}{\mathrm{Accounts}\mathrm{receivables}\mathrm{turnover}}\\ & =& \frac{365}{8.04}\\ & =& 45.39\mathrm{days}.\end{array}$

Comparison

According to the accounts receivables turnover ratio and the collection period, Apple operates more efficiently because, the account receivable ratio of the Apple Company is higher than the other two companies for the current year, and also, the number of days required for the collection of the cash is lower for Apple Company as compared to the other two companies. The second most efficient company is Samsung and Google is the least performing company.

Reference:

	Apple		Google
	Current year	One year prior	Current year	One year prior
Accounts receivable turnover	13.62	11.96	7.16	7.22
Collection period	26.80	30.51	50.98	50.55