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.
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
I saw this kind of tools when there is an accounting services in our company. They are Financial Statements in Gold Coast and they are great on this kind of job. You can also visit their website here to know more about their services.
ReplyDelete