Question 7.6: Computation of Activity Ratios An analyst would like to eval......
Computation of Activity Ratios
An analyst would like to evaluate Lenovo Group’s efficiency in collecting its trade accounts receivable during the fiscal year ended 31 March 2010 (FY2009). The analyst gathers the following information from Lenovo’s annual and interim reports: (Table 1)
Calculate Lenovo’s receivables turnover and number of days of sales outstanding
(DSO) for the fiscal year ended 31 March 2010.
| US$ in Thousands | |
| Trade receivables as of 31 March 2009 | 482,086 |
| Trade receivables as of 31 March 2010 | 1,021,062 |
| Revenue for year ended 31 March 2010 | 16,604,815 |
| (Table 1) | |
\begin{array}{lll}\text{Receivables turnover}& =& \text{Revenue/Average receivables}\\&=& 16,604,815/ [(1,021,062 + 482,086)/2]\\&=& 16,604,815/751,574\\&=& 22.0934 \text{ times, or }22.1 \text{ rounded }\\\text{ DSO }&=& \text{ Number of days in period/Receivables turnover}\\&=& 365/22.1\\&=& 16.5\text{ days}\end{array}
On average, it took Lenovo 16.5 days to collect receivables during the fiscal year ended 31 March 2010.