Question
The table below shows an efficiency ratio calculated for Tami Ltd Which of the following statements is CORRECT about this ratio The average se settlement t period for trade receivables indicates how quickly the money its suppliers Companies settlement periods for trade
Answer
3.9
(321 Votes)
Evan
Master · Tutor for 5 years
Answer
The statement indicating that from 2021 Tami Ltd's customers did take a noticeably longer duration to pay the amounts that the textField owing compared to 2020 is correct.
Explanation
## Step 1:To analyze the glimpse provided by the 'average settlement period for trade receivables ratio', understand that this is aithmetic native examination/tests/product which gives us insight into the speed at which a company is able to collect payments for sales made on credit. In simpler terms, it equates to the fundamental length of time (in days) it takes for an entity to collect receivables from its customers.## Step 2:Moving forward, take note of the data that is presented in the table for the given company - Tami Ltd. An uptick from 32 days in 2020 to 45 days in 2021 points to an appreciable increase in the length of time Tami Ltd needed to collect payments from its customers.### Formulation: Using \(\dfrac{365}{\text{Receivables Turnover Ratio}} = \text{Average Collection Period (in days)} \), recall that faster collections would imply successful payments made in a shorter timeframe which, in retrospect, would signify an efficiently functioning business (additionally strengthening Investor/user/racetrack/tractor/runwayee confidence in the efficacy of the business's credit policy).