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Analysis of Accounts Receivable Management and Its Impact on Financial Performance

This paper analyzes accounts receivable management and its impact on a company's financial performance.

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    Analysis of Accounts Receivable Management and Its Impact on Financial Performance 1. Using the provided financial forecast data, calculate the following: a. Projected Days Sales Outstanding (DSO): Given that net credit sales are $1,400,000, and the breakdown of sales is 20% in 10 days, 60% in 30 days, and 20% in 60 days, calculate the projected days sales outstanding . b. Projected Average Daily Sales: Given that net credit sales amount to $1,400,000, calculate the projected average daily sales . c. Projected Average Receivable Level: Using the projected days sales outstanding and the calculated average daily sales, determine the projected average receivable level . d. Investment in Accounts Receivables: Assuming that the variable cost is 60% of net credit sales, calculate the investment in accounts receivables based on the A/R turnover. e. Projected Annual Cost of Carrying Receivables: If the annual interest rate on receivables is 9%, calculate the projected annual cost of carrying the receivables . Based on the forecasts a. Projected days sales outstanding= accounts receivable/ net credit sales* 365 Net credit sales= 28000*$50= $1400000 Projected days sales outstanding= 10*20%+ 30*60%+ 60*20%= 32 days b. Projected average daily sales= $1400000/365= $3836 c. Projected average receivable level= projected days sales outstanding * net credit sales/ 365= 32*$3835.61= $122740 d. Investment in accounts receivables= total variable cost/ A/R turnover= $1400000*60%/ 365/32= $73644 Balance of accounts receivable= $122740 Balance of notes payables= $73644 Retained earnings= 122740 - $73644= $49096 e. Projected annual cost of carrying the receivables= $73644*9%= $6628 2. What are the various factors that affect the size of receivables and the dollar cost of carrying receivables? Discuss how credit sales, credit policies, terms of credit, expansion

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