If Receivables Are Growing Faster Than Sales, It May Be

question 39

True/False

If receivables are growing faster than sales, it may be an indication that the company is accomplishing sales growth by taking on increased credit risk.

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Definitions:

Zero NPV

A situation where the net present value (NPV) of an investment is zero, indicating that the investment is expected to break even and not generate any net profit or loss over time.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in its sales volume, indicating the impact of fixed costs on earnings.

Fixed Production Costs

Costs that do not change with the level of production or output, such as rent, salaries, and insurance premiums, which a company must pay regardless of its level of production.

Contribution Margin

The selling price per unit, minus the variable cost per unit, indicating how much a product contributes towards covering fixed costs and generating profit.