If a Firm's Average Collection Period Is 42 Days, and This

question 105

Essay

If a firm's average collection period is 42 days, and this compares favorably to the industry average, what questions may you want to ask before assuming that the firm is "efficient"?

---

Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Break-even Point

The financial stage where total costs and total revenues are equal, meaning no net loss or gain has been achieved, often considered a minimum success point for a business venture.

Annual Sales

The total revenue generated from sales activities within a fiscal year, often used as a key performance indicator for businesses.