Introduction
This report analyses how Down East Pharmaceuticals is managing its receivables. Different companies in the industry are facing issues regarding management of their receivables and therefore it has become important for the firms to manage their receivables appropriately. This report analyzes the average collection period (ACP) in days for the firm along with average daily sales of the firm. Moreover, the report also uses the given data in order to forecast the uncollected balance schedule of the company.
Average collection period
Average collection period shows the time the company takes in order to receive the cash for the accounts receivables (Weygandt, Kieso, & Kell, 1996). The lower the collection period, the better it is for the company as the company is able to safe itself from bad debt (Bodie, Kane, and Marcus, 2004).. The average collection period is calculated by dividing the receivables balance and the average daily sales. The following table shows the average collection period
The collection period has decreased in the month of June than March particularly because of the fact that more cash has been collected by the company as the time has increased.
Average daily sales
Average daily sales represent the average sale or revenue that the company has generated in a single day (McLaney, 2009). It is calculated by dividing the total sales by the number of days in a year. The following table shows the average daily sales of the company for the months of March and June.
It has been found that the average daily sales of the company have increased in June drastically in comparison to the average sales in March. The main reason for this is that only 30% of the sales or revenue is collected in the same month and then 50% of the revenue is collected in the second month and then the remaining revenue is collected in the third month. Therefore the month of March only includes 30% of the revenue of March and 70% of the revenue of March is not included in it. So the collection of revenue has a major influence on the average daily sales.
Average receivable level
The average receivable level is the average receivables for the given period and it is shown in the table below
Uncollected balances
The uncollected balance for the month of March and June are as follows:
Aging schedule
Aging schedule for the month of March and June are as follows:
Receivable levels for the second year
The receivable levels for the second year are shown in the table below:
References
McLaney, E. (2009). Business Finance: Theory and Practice. Pearson Education: New Jersey.
Bodie, Z., Kane, A., and Marcus, A. (2004). Essentials of Investments, 5th ed. London, McGraw-Hill Irwin.
Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, John Wiley & Sons.
