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Question on Financial Ratio?
Kirby Industries has sales of $110,000 and accounts receivable of $12,500, and it gives its customers 30 days to pay. The industry average DSO is 25.5 days, based on a 365 day year. If the company changes its credit and collection policy sufficient to cause its DSO to fall to the industry average, and if it earns 9.5% on any cash freed-up by this change, how would that affect the firm's net income, assuming other things are held constant?
The answer is $457.43. But I do not know how to work towards it. Anyone can help?
1 Answer
- Anonymous8 years agoFavorite Answer
[12,500 - ( 110,000 x 25.5/365)] x 0.095 = $457. 43