Question

Recent financial statements of General Mills, Inc. report net sales of \(12,442,000,000. Accounts receivable are \)912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills’ accounts receivable turnover. Compute General Mills’ average collection period for accounts receivable in days.

Short answer

Accounts receivables turnover:13.34 times

Average Collection Period:27.36 days

Step-by-step solution

Definition of Financial Ratios

Financial Ratios can be defined as the various metric calculated using items of the financial statement to determine the financial capability of the business entity on various grounds.

Accounts Receivable Turnover

$\begin{array}{rcl}\mathrm{Accounts}\mathrm{receivables}\mathrm{turnover}& =& \frac{\mathrm{Net}\mathrm{sales}}{\mathrm{Average}\mathrm{accounts}\mathrm{receivables}}\\ & =& \frac{\$12,442,000,000}{{\displaystyle \frac{\$912,000,000+\$953,000,000}{2}}}\\ & =& \frac{\$12,442,000,000}{\$932,500,000}\\ & =& 13.34\mathrm{times}\end{array}$

Average collection period

$\begin{array}{rcl}\mathrm{Average}\mathrm{collection}\mathrm{period}& =& \frac{365}{\mathrm{Accounts}\mathrm{receivables}\mathrm{turnover}}\\ & =& \frac{365}{13.34}\\ & =& 27.36\mathrm{days}\end{array}$