What is the average collection period ratio for a firm that has $365,000 in annual revenues, $6,600 in current receivables, and net income of $32,000?

To determine the average collection period ratio, you first need to calculate the daily sales, which is derived from the annual revenue. Dividing the annual revenues by 365 gives the daily sales amount. Once you have the daily sales, you can calculate the average collection period by dividing the current receivables by the daily sales.

In this case, the annual revenues are $365,000. Dividing by 365 results in daily sales of approximately $1,000. Next, the average collection period can be calculated by taking the current receivables of $6,600 and dividing it by the daily sales of $1,000. This results in an average collection period of approximately 6.6 days.

This ratio indicates how long it typically takes for the company to collect on its credit sales, which can help assess the firm's effectiveness in managing its receivables. Understanding this ratio is crucial for financial management as it reflects on cash flow and overall financial health.