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Watts Inc. specializes in imported goods, focusing particularly on food products. For 2019, the company realized net sales of $9,700,000 and average net trade accounts receivable were $1,057,000. In 2018, Watts had realized a net loss for the year in the amount of $20,000; however, extraordinary efficiency efforts in 2019 increased net income by $445,000.
Required:
1. Calculate Watts' accounts receivable turnover.
2. Calculate Watts' net profit margin ratio.
(a)
Accounts Receivable Turnover Ratio:
The accounts receivable turnover ratio is a ratio which helps in measuring the process of collection of receivables of a business as faster the process, better the liquidity of the business. This ratio shows the policy of the company and its effectiveness against the credit sales of the company.
To calculate:
The accounts receivable turnover ratio.
The net sales of
The computation of accounts receivable turnover ratio is as follows:
(b)
Net Profit Margin Ratio:
The net margin ratio is a type of profitability ratio which is used to measure the returns and earning after all expenses i.e. net earnings and compute the ratio in respect to the sales of the business.
To calculate:
The net profit margin ratio.
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