CA Gunjan Kedia
( Expert )
19 November 2010
here's ur answer:
Ratio of receivables to current assets =
for example, if the total current assets are 100 and receivables are 20, then the ratio will be 20/100 = 0.2
this means that 20% of the current assets are receivables.
we know that funds that are employed in the business carry an opportunity cost. hence if this ratio is very high, it means that the credit policy of the business may not be sound, too much money is locked up in the receivables. if this money were not locked up in the receivables, it could have have been invested elsewhere to earn a return, or may have been repaid to the financier (in case working capital is borrowed).