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Chapter 3

Q. 3.5

Take a look at the most recent numbers reported for Sales/Receivables and EBIT/ Interest in Table 3.11. What are the overall median values? What are these ratios?

Step-by-Step

Verified Solution

If you look back at our discussion, you will see that these are the receivables turnover and the times interest earned, or TIE, ratios. The median value for receivables turnover for the entire group is 31.9 times. So, the days in receivables would be 365/31.9=11, which is the bold-faced number reported. The median for the TIE is 2.6 times. The number in parentheses indicates that the calculation is meaningful for, and therefore based on, only 540 of the 596 companies. In this case, the reason is probably that only 540 companies paid any significant amount of interest.