Payable/ Recievable Days Flashcards
Equation for payable days
Payable days / cost of sales X 365
How to work out cost of sales if it’s not there
Difference between revenue and gross profit
How to interpret payable days
- suppliers want to know how long it takes to get payed - long time = unreliable/ cash flow problems
- business wants longer payable days so they can have good cash flow
How to improve payables
- pay suppliers quicker ( but do you have the cash)
- negotiate longer pager terms
What is receivable days
How efficient a business is at managing debt collection
Equation for receivables
Current assets / sales Rev X 365
How to improve receivable days
- decrease credit terms
- increase incentives for early payment e.g. add discount
What is Inventory turnover
How many times a business has to replenish its stock levels a year
Equation for inventory turnover
Cost of sales / inventories
What to bare in mind for inventory turnover
- cashflow better for inventory turnover
- low figures = holding too much stock
Two ways to improve inventory turnover
- use lean production methods to decrease buffering stocks
- discontinue unpopular producs
