Hi. I am doing my CAT--FFM paper and don't seem to understand the following:
If customers on average take 2.5 months to pay their debts, and if all sales are on credit (sales = 100,000$) how does this translate into (2.5/12)*100,000 as the receivables as at reporting date?
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Working capital
10y ago#1The sales each month are 100,000/12.
If customers take 2.5 months to pay, then it means that the amount owing at any time (including the reporting date) must be 2.5 time the monthly sales. So 2.5 x 100,000/12.
But John, for this to work we are placing an unrealistic assumption that the sales per day have to be the same. 100,000/365
Thats not possible.
10y ago#3No. We are assuming that on average the sales are 100,000/12 per month (not that they are exactly that much each month). That is possible, and is all we can assume without more information.
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