Company a Has a Receivables Turnover of 8

question 154

Multiple Choice

Company A has a receivables turnover of 8.0.Company B has a receivables turnover of 10.0.Which of the following statements is correct?

• A)Company A collects its receivables faster than Company B.
• B)Company B collects its receivables faster than Company A.
• C)Company A makes more sales on account than Company B.
• D)Company B makes more sales on account than Company A.

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Definitions:

Financial Leverage

The use of borrowed capital or debt to increase the potential return of an investment.

Operating Leverage

Operating leverage is a measure of how revenue growth translates into growth in operating income, indicating the extent to which a company can increase its profits by increasing sales.

Modigliani-Miller Model

A foundational financial theory proposing that the market value of a company is determined by its earning power and risk of its underlying assets, and is independent of the way it chooses to finance its investments or distribute dividends.

Restructuring

The process of reorganizing a company's structure, operations, or debt to improve efficiency or manage financial challenges.