Which of the following is helpful in evaluating the credit and collection policies of the company?
Answer & explanation
Correct answer: option 2
The liquidity position of the firm depends upon the speed with
which trade receivables are realised. Trade Receivable Turnover ratio indicates the number of times
the receivables are turned over and converted into cash in an accounting period.
Higher turnover means speedy collection from trade receivable. This ratio also
helps in working out the average collection period. The ratio is calculated by
dividing the days or months in a year by trade receivables turnover ratio.