
points

Return to questionItem 4
Problems 6-5 Interpreting accounts receivable turnover (LO6-7)
Packaging Corporation of America produces containerboard and white papers. WestRock Co. manufactures paper products and corrugated products. Financial statement data for these two companies follow:

 

Packaging Corporation of America
($ in millions of dollars)	2015	2016	2017	2018
Sales	 	 	 	$	5,779.0	 	$	6,444.9	 	$	7,014.6	 
Accounts receivable at December 31	$	636.5	 	 	689.2	 	 	830.7	 	 	901.9	 
 

WestRock Co.
($ in millions of dollars)	2015	2016	2017	2018
Sales	 	 	 	$	14,171.8	 	$	14,859.7	 	$	16,285.1	 
Accounts receivable at December 31	$	1,575.4	 	 	1,592.2	 	 	1,886.8	 	 	2,010.7	 
 

Source: Computed from amounts in the Packaging Corporation of America and WestRock Co. Form 10-Ks for 2014–2018. In 2015 and 2016, WestRock was known as WRKCo., Inc.

 

Required:

Determine the receivables turnover ratios for both companies for 2016, 2017, and 2018. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 1 decimal place.)
Which company collected its accounts receivable more quickly in 2018?
 do not round

To determine the **receivables turnover ratio** for each company for 2016, 2017, and 2018, we'll follow these steps:

1. **Calculate the Average Accounts Receivable** for each year:
   \[
   \text{Average Accounts Receivable} = \frac{\text{Beginning Accounts Receivable} + \text{Ending Accounts Receivable}}{2}
   \]

2. **Receivables Turnover Ratio** is calculated using:
   \[
   \text{Receivables Turnover Ratio} = \frac{\text{Sales}}{\text{Average Accounts Receivable}}
   \]

3. **Days Sales Outstanding (DSO)**, which helps us understand how quickly the company collected its receivables:
   \[
   \text{Days Sales Outstanding} = \frac{365}{\text{Receivables Turnover Ratio}}
   \]

---

### 1. Packaging Corporation of America

#### 2016
1. **Average Accounts Receivable** = $\frac{636.5 + 689.2}{2} = 662.85$
2. **Receivables Turnover Ratio** = $\frac{6,444.9}{662.85} \approx 9.7$
3. **DSO** = $\frac{365}{9.7} \approx 37.6$ days

#### 2017
1. **Average Accounts Receivable** = $\frac{689.2 + 830.7}{2} = 759.95$
2. **Receivables Turnover Ratio** = $\frac{7,014.6}{759.95} \approx 9.2$
3. **DSO** = $\frac{365}{9.2} \approx 39.7$ days

#### 2018
1. **Average Accounts Receivable** = $\frac{830.7 + 901.9}{2} = 866.3$
2. **Receivables Turnover Ratio** = $\frac{7,014.6}{866.3} \approx 8.1$
3. **DSO** = $\frac{365}{8.1} \approx 45.1$ days

---

### 2. WestRock Co.

#### 2016
1. **Average Accounts Receivable** = $\frac{1,575.4 + 1,592.2}{2} = 1,583.8$
2. **Receivables Turnover Ratio** = $\frac{14,859.7}{1,583.8} \approx 9.4$
3. **DSO** = $\frac{365}{9.4} \approx 38.8$ days

#### 2017
1. **Average Accounts Receivable** = $\frac{1,592.2 + 1,886.8}{2} = 1,739.5$
2. **Receivables Turnover Ratio** = $\frac{16,285.1}{1,739.5} \approx 9.4$
3. **DSO** = $\frac{365}{9.4} \approx 38.8$ days

#### 2018
1. **Average Accounts Receivable** = $\frac{1,886.8 + 2,010.7}{2} = 1,948.75$
2. **Receivables Turnover Ratio** = $\frac{16,285.1}{1,948.75} \approx 8.4$
3. **DSO** = $\frac{365}{8.4} \approx 43.5$ days

---

### Summary of Receivables Turnover Ratios and DSO

| Year | Company                        | Receivables Turnover Ratio | DSO (days) |
|------|--------------------------------|----------------------------|------------|
| 2016 | Packaging Corporation of America | 9.7                        | 37.6       |
| 2016 | WestRock Co.                    | 9.4                        | 38.8       |
| 2017 | Packaging Corporation of America | 9.2                        | 39.7       |
| 2017 | WestRock Co.                    | 9.4                        | 38.8       |
| 2018 | Packaging Corporation of America | 8.1                        | 45.1       |
| 2018 | WestRock Co.                    | 8.4                        | 43.5       |

### Conclusion
In **2018**, **WestRock Co.** collected its accounts receivable more quickly, with a DSO of approximately **43.5 days**, compared to **Packaging Corporation of America's 45.1 days**.

Would you like more details or have any questions about the calculations?

---

1. How do changes in sales impact the receivables turnover ratio?
2. What factors could cause a company's DSO to increase?
3. How does receivables turnover relate to cash flow?
4. Why might one company consistently collect receivables faster than another?
5. How does seasonality affect accounts receivable management?

**Tip:** A lower DSO generally indicates quicker collections, enhancing a company's cash flow and liquidity.

Determine the receivables turnover ratios for both companies for 2016, 2017, and 2018. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 1 decimal place.) Which company collected its accounts receivable more quickly in 2018?

Calculate and compare the receivables turnover ratios for Packaging Corporation of America and WestRock Co. from 2016 to 2018. This guide covers the key formulas for Average Accounts Receivable, Receivables Turnover Ratio, and Days Sales Outstanding, and identifies which company collected receivables faster in 2018.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation