Chapter 7 Discussion - Obviously a company would prefer to...

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Obviously a company would prefer to keep the growth rate of accounts receivable to be at or slower than the company's revenue growth. Therefore, after analyzing a company's financials, is this a pretty accurate indicator of a company's health or are there too many factors and explanations that basing an assumption of a company's health on such growth rates would be inaccurate? By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Therefore, accounts receivable growth rate can be considered as one of the key indicator of a company's health, but to base an assumption of a company’s growth solely on such a growth would be inaccurate. What is imputed interest? How do you calculate it? Interest on an investment that is assumed for certain purposes to be paid even though no interest payment is physically received by the investor. It can also be stated as interest assumed on a noninterest-bearing note, including discounted or zero-coupon instruments, or on a note with an unrealistically low interest rate. It applies to both notes payable and notes receivable. The imputed interest rate is the one the borrower would normally incur in a similar transaction. For example, the Internal Revenue Service considers annual accretion on a zero-coupon corporate or a zero-coupon
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Chapter 7 Discussion - Obviously a company would prefer to...

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