American Eagle Outfitters, Inc. sells clothing, accessories, and personal care products for men and women through its retail stores

American Eagle Outfitters, Inc. sells clothing, accessories, and personal care products for men and women through its retail stores. American Eagle reported the following data (in millions) for two recent years:

                    Year 2 | Year 1

Sales               $3,522 | $3,283

Accounts receivable     81 |     68

Assume that accounts receivable (in millions) were $74 million  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 day’s 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 American Eagle Outfitters’ 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: 7.7 (365 days ÷ 47.28) (Difference due to rounding)

Year 1: 7.9 (365 days ÷ 46.24)

c. The accounts receivable turnover indicates an increase in the efficiency of 

collecting accounts receivable by increasing from 46.24 to 47.28, a favorable

change. The days’ sales in receivables indicates an increase in the efficiency of 

collecting accounts receivable by decreasing from 7.9 to 7.8, also indicating a 

favorable change. Before a conclusion can be reached, however, the ratios should 

be compared with industry averages and similar firms.