Chen Manufacturing Co. in Singapore has the following ratios:

Year 1: Trade receivables turnover = 45 days
Year 2: Trade receivables turnover = 62 days

What does this change suggest about the business?

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Question

Chen Manufacturing Co. in Singapore has the following ratios:

Year 1: Trade receivables turnover = 45 days
Year 2: Trade receivables turnover = 62 days

What does this change suggest about the business?

Accepted Answer

Customers are taking longer to pay — Award 1 mark for correct interpretation. An increase in trade receivables turnover days indicates slower collection of debts. A is incorrect — improved credit control would reduce the number of days. C is incorrect — this change relates to collection period, not volume of credit sales. D is incorrect — cash sales do not directly affect the trade receivables turnover ratio.

Answer

The business has reduced its credit sales

Answer

Customers are taking longer to pay

Answer

Credit control has improved

Answer

Cash sales have increased

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