Accounts Receivable Risk Analysis for Acquisitions Due Diligence Business Rescue

Transcription

1 Jan 2015 Accounts Receivable Risk Analysis for Acquisitions Due Diligence Business Rescue 1

2 Contents 1. Introduction 2. Sample Historical Data Target Company 3. Traditional Analysis 4. DSOB Risk Analysis 5. Comparison of Methods 6. Forecasting Analysis 7. Summary of results 8. Contacts All benchmarks in this case study use the Mantramaxmethodology benchmarking Accounts Receivable against Internal Credit Terms 2

3 1. Introduction This case study show the difference in performance/risk ofaccounts Receivables in Company X and Y with equal dataset totals. Company X & Y - Dataset Totals Feb Mar Apr May Jun Jul Total Credit Turnover incl VAT/Sales Tax R R R R R R Total Debtors Age Analysis R R R R R R The Age Analysis balances for each Company s Debtors Book were calculated in a uniform manner for consistency. Days Sales Outstanding Equal Same AR Performance/Risk?????? The effect of an upward or downward revenue trend in different Payment Credit Terms on the monthly performance of Accounts Receivable is highlighted in the result comparison. The long term effect of these trends will have a significant impact on forecasted/budget Account Receivable balances. 3

4 2. System Data Company X and Y Company X Turnover incl VAT/Sales Tax Feb Mar Apr May Jun Jul 15 days Invoice R R R R R R 0 30 days Statement R 0 R R R R R Total Credit Turnover inclvat/sales Tax R R R R R R Month end Month end Month end Month end Month end Month end Debtors Age Analysis as at Feb Mar Apr May Jun Jul 1 to 30 days (Current) R R R R R R to 60 days R 0 R R R R R to 90 days R 0 R 0 R R R R Total Debtors Age Analysis R R R R R R Company Y Turnover incl VAT/Sales Tax Feb Mar Apr May Jun Jul 15 days Invoice R 0 R R R R R days Statement R R R R R R 0 Total Credit Turnover incl VAT/Sales Tax R R R R R R Month end Month end Month end Month end Month end Month end Debtors Age Analysis as at Feb Mar Apr May Jun Jul 1 to 30 days (Current) R R R R R R to 60 days R 0 R R R R R to 90 days R 0 R 0 R R R R Total Debtors Age Analysis R R R R R R

5 3. Performance Review Company X A/R Performance Measurement Feb Mar Apr May Jun Jul Debtors Days - Average Sales Method (3 months) Days Sales Outstanding (DSO) Best Possible Days Sales Outstanding (BPDSO) Delinquent Days Sales Outstanding (DSSO) Days Sales Outstanding Benchmark (DSOB) Delinquency Index (DSO/DSOB) % % % % % % Delinquency Improvement Target (DSO to DSOB) 0.00% 31.11% 30.73% 23.26% 20.38% 17.13% Accounts Receivable Performance Values Total Debtors Book Value R R R R R R Debtors Delinquency Index Target Value R 0 R R R R R DSOB Value R R R R R R

6 4. Performance Review Company Y A/R Performance Measurement Feb Mar Apr May Jun Jul Debtors Days - Average Sales Method (3 months) Days Sales Outstanding (DSO) Best Possible Days Sales Outstanding (BPDSO) Delinquent Days Sales Outstanding (DSSO) Days Sales Outstanding Benchmark (DSOB) Delinquency Index (DSO/DSOB) % 98.34% % % % % Delinquency Improvement Target (DSO to DSOB) 0.00% -1.69% 14.55% 15.98% 20.38% 25.66% Accounts Receivable Performance Values Total Debtors Book Value R R R R R R Debtors Delinquency Index Target Value R 0 R R R R R DSOB Value R R R R R R

7 5. Comparison of Results Company X vs Y Days Sales Outstanding (DSO) Feb Mar Apr May Jun Jul Company X Company Y Industry Standard Days Sales Outstanding Benchmark (DSOB) Feb Mar Apr May Jun Jul Company X Company Y Delinquency Index (DSO/DSOB) Feb Mar Apr May Jun Jul Company X % % % % % % Company Y % 98.34% % % % % Index base % % % % % % As can be seen above, the DSO for both companies are the same. The DSOB trend for Company X is upward and the reverse for Company Y. If the monthly revenue fluctuate then these trends will be directly affected. For comparison purposes only the DSO, DSOB and Delinquency Index trends are shown. 7

8 6. Comparison Graphs Company X vs Y Days Sales Outstanding(DSO) Days Sales Outstanding Benchmark (DSOB) Debtors Feb Mar Apr May Jun Jul Company X Company Y Industry Standard Debtors Feb Mar Apr May Company X Company Y Jun Jul Benchmark Delinquency Index (DSO/DSOB) % % % % % % 90.00% Feb Company X Mar Apr May Company Y Jun Jul The DSO graph show that based on Total Turnover and Debtors Book value, Company X and Y is the same. The DSOB show the reversal of trends between the two companies with the Delinquency Index indicating the change in risk profiles of the two companies. 8

9 7. Contacts Contact me for Initial Reviews and Monthly Reports for your company or clients: Wessel Roux Cape Town, South Africa Cell +27 (0) Fax +27 (0)