Accounting 2: Financial Ratio Analysis - Accounts Receivable Report

This report provides a comparative financial analysis of Columbia Sportswear and VF Corporation, focusing on their accounts receivable management. It calculates and interprets key financial ratios, including accounts receivable turnover and average collection period, for the year 2014. The analysis reveals insights into each company's efficiency in collecting receivables, with a conclusion that VF Corporation demonstrates better performance in this area. The report uses data from financial statements to support its findings and includes a discussion of the implications of these ratios on the companies' cash flow and credit policies. The report also provides definitions and formulas for the ratios used, making it a comprehensive resource for understanding accounts receivable management in the context of these two companies.

Running head: ACCOUNTING 2
Accounting 2
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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Accounts receivable turnover.................................................................................................3
Average collection period......................................................................................................3
Conclusion..................................................................................................................................4
Reference....................................................................................................................................6

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Introduction
Columbia Sportswear Company, the leading innovators for active outdoor footwear,
apparel, equipment and accessories has assembled the portfolio for active lives. The company
was established in Portland in the year 1938. At present the company sells its products over
more than 90 countries. Apart from that, the company is also the owner of Mountain
Hardwear®, prAna®, SOREL®, and OutDry® brands (Outdoor Clothing, Outerwear &
Accessories | Columbia Sportswear, 2018).
On the other hand, VF Corporation was formed during the year 1899 and it is engaged
in procurement, production, design, distribution and marketing of lifestyle footwear, apparel
and associated products. The segment of the company also includes action and outdoor
sports, image wear, jeans wear and sportswear. The company delivers its product through 27
VF-operated manufacturing facilities and more than 1600 contractor for manufacturing
facilities over more than 50 countries (VF Corporation (VFC), 2018).
Discussion
Ratios for the year 2014 –
Particulars Ratio formula
Columbia
Sportswear VF Corporation
Net sales $ 21,00,590.00 $ 121,54,784.00
Average accounts
receivables $ 3,25,634.00 $ 13,18,333.50
Accounts receivable
turnover
Net sales/Average
accounts receivable 6.45 9.22
Average collection
period
365 / Accounts receivable
turnover 56.58 39.59

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Accounts receivable turnover
It is the activity ratio or efficiency ratio and it measures the times for which the
business can turn their accounts receivable into cash for the specific period of time. To be
more specific, this ratio measures times for which the company can collect their average
accounts receivable for the particular year (Martínez‐Sola, García‐Teruel & Martínez‐Solano,
2013). For computing the accounts receivable turnover, net credit sales of the company is
divided by average receivable of the company. The reason why only credit sales are
considered that the cash sales are not considered receivable as the cash is received
immediately and it does not create any receivables. As the measures the efficiency of the
company for collecting the dues, higher ratio is considered as favorable. Higher ratio states
that the company is collecting the dues regularly all over the year. Further, from the
standpoint of cash flow higher ratio is considered favorable as the collected cash can be used
for paying off the bills or other short-term obligations. It can be seen from the above
calculation that the net sales of Columbia sportswear company is $ 21,00,590 and average
accounts receivable is $ 3,25,634. Therefore, the account receivable turnover for the company
is 6.45 times. It states that the company is able to collect its receivable 6.45 times during the
year 2014 (Weygandt, Kimmel & Kieso, 2015). On the other hand, the net sales of VF
Corporation is $ 121,54,784 and average accounts receivable is $ 13,18,333. Therefore, the
account receivable turnover for the company is 9.22 times. It states that the company is able
to collect its receivable 9.22 times during the year 2014.
Average collection period
It computes the days between the credit sales and receipt if payment on that. It is the
strong indicator for measuring the liquidity status of the company over its accounts receivable
that is the money owed by the customers to the entity. Apart from that it states the credit

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policies of the company (Delen, Kuzey & Uyar, 2013). If the average collection period of the
company is short, it reveals that the company has tight policy for credit and is efficient in
managing the accounts receivables. This in turn enables the business to pay off their short-
term liabilities efficiently. On the contrary, the long average collection period states that the
entity shall tighten the credit policy. It shall further, improve the efficiency of the
management in collecting the receivables so that it can meet its short-term obligations
efficiently. For computing the average collection period 365 days is divided by account
receivable turnover. Looking into the above table it is recognized that the accounts receivable
turnover of Columbia Sportswear Company is 6.45. Dividing 365 by 6.45 it comes to 56.58
days. Therefore, the company takes 56.58 days on average for collecting its receivables. On
the other hand, it is found that the accounts receivable turnover of VF Corporation is 9.22.
Dividing 365 by 9.22 it comes to 56.58 days. Therefore, the company takes 56.58 days on
average for collecting its receivables (Drehmann & Nikolaou, 2013). Hence both the
companies are efficient in collecting their receivables during the year 2014.
Conclusion
It can be concluded from the above discussion that if the accounts receivable turnover
is taken into consideration, it is found that both the companies are efficient in collecting
receivables. Further, the times for which both businesses can turn their accounts receivable
into cash for the specific period of time seems good. However, if both the companies are
compared with each other in this aspect, it can be observed that VF Corporation is more
efficient as compared to Columbia Sportswear. The reason behind this is that the Accounts
receivable turnover ratio for VF Corporation is 9.22 times as against the ratio of Columbia
Sportswear that is 6.45 times. On the other hand, if the average collection period is taken into
consideration, it can be identified that for Columbia Sportswear it is 56.58 days whereas for

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VF Corporation it is 39.59 days. Therefore, as the account receivable turnover of VF
Corporation is better, it makes the average collection period for the company better as
compared to Columbia Sportswear Company.

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Reference
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios:
A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.
Drehmann, M., & Nikolaou, K. (2013). Funding liquidity risk: definition and
measurement. Journal of Banking & Finance, 37(7), 2173-2182.
Martínez‐Sola, C., García‐Teruel, P. J., & Martínez‐Solano, P. (2013). Trade credit policy
and firm value. Accounting & Finance, 53(3), 791-808.
Outdoor Clothing, Outerwear & Accessories | Columbia Sportswear. (2018). Columbia.com.
Retrieved 28 February 2018, from https://www.columbia.com/
VF Corporation (VFC). (2018). Vfc.com. Retrieved 28 February 2018, from
https://www.vfc.com/
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.