Question

Noble Company’s accounts receivable turnover was 18.2 in Year 1 and 24.6 in Year 2. This change in accounts receivable turnover indicates that the




A. company isn’t selling its inventory as fast.


B. company is selling its inventory faster.


C. company’s customers are paying faster.


D. company’s customers are paying slower.

Answer 1

Suppose the sales increased by 50% in year 2 then it would be normal if the account receivable increased by 35%. However, I need to see the company accounts to understand what is going on. If the turnover is still the same then we can say that clients are paying slower.

Answer 2

B. the company is selling  its inventory faster.