Working capital

This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.

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August 19, 2015 at 4:55 pm #267779
alighere
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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?
August 19, 2015 at 6:55 pm #267796
John Moffat
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The 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.
August 19, 2015 at 7:31 pm #267801
alighere
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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.
August 20, 2015 at 6:52 am #267828
John Moffat
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No. 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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