Trade Receivables Turnover in Days Measures Collection Efficiency

Steps:

• Trade receivables turnover in days = 365 / (credit sales / average receivables); lower days indicate faster collection.
• Company X has 45 days, Company Y has 55 days, so Y collects receivables slower than X.
• Slower collection means Y is less efficient at managing receivables.
• Option C directly matches this inefficiency interpretation.

Why C is correct:

• Higher days (55 vs. 45) mean Y takes longer to convert receivables to cash, indicating lower efficiency per the turnover formula.

Why the others are wrong:

• A: Higher days suggest relatively higher receivables for sales, but the ratio indicates efficiency, not absolute levels.
• B: Slower collection reduces liquidity, so Y has lower liquidity than X.
• D: Higher days imply more generous credit terms or poor collection, not less credit offered.

Final answer: C