Quick Financial Statement Analysis tips

Day’s Receivable calculation - Your Financial Statement analysis tool


As a quick memory jog, this is useful calculation





















The formula is useful if you wish to evaluate a single customer or a group of customers or simply the whole customer portfolio. I am sure most of you are familiar with the receivable day collection period BUT I can guarantee most of your salespeople are not so please pass this on. The next time you have a chat about an existing customer or a new customer as to the how the days outstanding have moved from one period to the next your people can use this calculation to provide the evidence supporting the question. That’s it for this week Regards Andre 925 323 2802


Inventory day’s calculation

 







An easy way to calculate the average inventory holding for a particular product or group of products.

Inventory value /COGS X Days reflected in the GOGS amount

 






























A small test to give your people based on the above. If revenue of a particular SKU grows by 10% and the days inventory says the same will the inventory $ holding remain the same, decline or increase. Also what would the cash consequence be.

Have a great day











Vendor payment period

The last of the working capital trio. How to calculate your accounts payable days or vendor days outstanding

We take the amount we owe to our vendors at the end of the period and divide it by the COGS (including the direct shipment COGS)[i]. We then multiply the result with the trading days represented in the total COGS.

Accounts payable or vendor days outstanding are useful when wanting to compare your inventory holding with how quickly you pay your vendors. If you not taking settlement discount, your payable days should exceed your inventory days.




[i] Remember when we calculate inventory days we exclude direct shipment COGS from our inventory

Working Capital Per $ of Sales

Have you ever been in a situation where you need to know the cash impact of a new customer, or an additional product range from a new supplier, or for that matter how a bid would create cash. Working capital per $ of revenue could be most helpful in these cases.

Step 1 calculate your average working capital per $ of revenue (WC/$) (see example below)

Step 2 Multiply your revenue with the (WC/$), adjust for the time period if less than a year. = Total working capital retention at the end of the period

Step 3 = Take your gross profit contribution and deduct your working capital requirement this is the cash impact due to the transaction as at the end of the period.

Hope this helps


Vendor payment period

1 comment:

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