When the Debt Turnover Ratio is 4, what is the average collection period?
A. 5 months
B. 4 months
C. 3 months
D. 2 months
Answer: Option C
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Debt Turnover ratio = Net credit sales/ Average trade receivables = 4
Average collection period = 12 months / Debt turnover ratio = 12 months / 4 = 3 months