FSA Assignment :RECEIVABLES TURNOVER RATIOS
Receivables Turnover Ratio = Net Sales (Revenue) . Average Net Accounts Receivable
Average Age of Receivables = Number of Days in Year (365). Receivables Turnover
* Calculate the receivables turnover ratio and average age of receivables for Deckers Outdoor Corporation (DECK) and Skechers U.S.A. Inc. (SKX) for the year ended December 31, 2011 (the most recent income statement period presented for each company). You will need the net accounts receivable amounts for DECK and SKX at December 31, 2010 and December 31, 2011 to calculate an AVERAGE net accounts receivable figure for the most recent annual income statement period for each company! Why do we use average net accounts receivable in the denominator of the ratio?…See below for the explanation.
* For net accounts receivable for DECK use the “Trade accounts receivable, net of allowances” balance
sheet line item at December 31, 2010 and December 31, 2011. For SKX use the “Trade accounts receivable,
less allowances” balance sheet line item at December 31, 2010 and December 31, 2011. The amount for the allowance for doubtful accounts at each year-end has already been deducted by each company to arrive at the net number as shown in each year-end balance sheet. Therefore, you use the numbers just as they are presented in the balance sheets!
* Your financial statement analysis must be in memo format.
* You must present the formulas for the ratios.
* Please indicate “dollars in thousands” if you are using the numbers as they are presented in the financial statements for both DECK and SKX … also, make sure to show dollar signs on amounts that are in dollars!!
* Show your calculations (the numbers you used to get the ratios), including those to arrive at average
net accounts receivable for both DECK and SKX.
* Calculate the receivables turnover ratio and average age of receivables to the nearest tenth. The receivable turnover ratio should be stated as “X.X times,” since it is a measure of how many times a company’s accounts receivable turns over (is collected) during the year. Average age of receivables should be stated as “X.X days,” since it is a measure of the number of days of sales that are in accounts receivable, on average (average number of days it takes to collect from a customer on account).
* Why do we use the average net accounts receivable figure in the denominator of the ratio?
Well, the “rule” in calculating financial ratios is that if you use an income statement amount in the
numerator (which covers a period of time), you should use an average balance sheet amount in the
denominator, rather than an end-of-period amount (at a “point in time”).
* When analyzing a ratio, always indicate in the first paragraph of your analysis what the ratio tells us —
what does the ratio tell us, IN GENERAL, about companies? You can always refer to Chapter 14 in
your text as another reference/resource. Additionally, please feel free to do a search on the internet.
There are countless websites which discuss and explain the receivable turnover ratios, as well as others
we’ll be analyzing this semester.
* In the next paragraphs, analyze the receivables turnover ratio and average age of receivables for each
company. In the final paragraph, compare the ratios for both companies. For instance, which
company had the highest turnover? Which had the lowest? Does turnover of receivables seem high
(low average age of receivables), or low (high average age of receivables)?
* Look at Management’s Discussion and Analysis, as well as the notes to the financial statements for
each corporation, for possible discussion and information related to accounts receivable.
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