Whichofthefollowingratioestablishestherelationshipbetween'Creditrevenuefromoperations'and Tradereceivables"?(a) Inventoryturnoverratio(b) Interestcoverageratio(c) Tradepayablesturnoverratio(d) Tradereceivablesturnoverratio
Question
Whichofthefollowingratioestablishestherelationshipbetween'Creditrevenuefromoperations'and Tradereceivables"?(a) Inventoryturnoverratio(b) Interestcoverageratio(c) Tradepayablesturnoverratio(d) Tradereceivablesturnoverratio
Solution
The ratio that establishes the relationship between 'Credit revenue from operations' and 'Trade receivables' is the Trade Receivables Turnover Ratio (d).
Here's why:
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Inventory Turnover Ratio: This ratio shows how many times a company has sold and replaced inventory during a given period. It doesn't involve 'Credit revenue from operations' or 'Trade receivables'.
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Interest Coverage Ratio: This ratio is used to determine how easily a company can pay interest on outstanding debt. It doesn't involve 'Credit revenue from operations' or 'Trade receivables'.
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Trade Payables Turnover Ratio: This ratio shows how quickly a business pays its suppliers. It doesn't involve 'Credit revenue from operations' or 'Trade receivables'.
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Trade Receivables Turnover Ratio: This ratio measures how efficiently a firm uses its assets. Specifically, it measures how efficiently a firm uses its trade receivables to generate sales, which is exactly the relationship between 'Credit revenue from operations' and 'Trade receivables'. Therefore, the correct answer is (d) Trade Receivables Turnover Ratio.
Similar Questions
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