Ralph Lauren Corporation designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products.

Ralph Lauren Corporation designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren, Polo Jeans Co., and Chaps. Polo Ralph Lauren reported the following (in thousands) for two recent years:

For the Period Ending Year 2 Year 1 Sales $7,620,000 $7,450,000 Accounts receivable 857,000 800,000

Assume that accounts receivable (in millions) were $607,000 at the beginning of Year 1.

a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to two decimal places.

b. Compute the days’ sales in receivables for Year 2 and Year 1. Use 365 days and round to one decimal place.

c.  What conclusions can be drawn from these analyses regarding Ralph Lauren’s efficiency in collecting receivables?

Answer:

a. and b.

Sales.................................... 

Average accts. receivable...... 

Accts. receivable turnover...... 

Average daily sales............... 

Days’ sales in receivables...... 

The days’ sales in receivables could also be computed by dividing 365 days by

the accounts receivable turnover as follows:

Year 2: 39.7 (365 days ÷ 9.20)

Year 1: 34.5 (365 days ÷ 10.59)

c. The accounts receivable turnover indicates a slight decrease in the efficiency of 

collecting accounts receivable by decreasing from 10.59 to 9.20, an unfavorable

change. The days’ sales in receivables also indicates a decrease in the efficiency 

of collecting accounts receivable by increasing from 34.5 to 39.7, which is an

unfavorable change. However, before reaching a final conclusion, the ratios 

should be compared with industry averages and similar firms.