• Shockproof! Training
  • 1.866.237.7228
  • Non-Member

    Membership Check

    Please enter your email address and we will check to see if a membership exists for your organization.

    Check Cancel
  • Account
    • Sign in

      If you have an account, please enter your login information.

      Sign-in

      Find Enrollments

      To quickly access links to materials or Session Access instructions, enter the email address used when enrollment was performed.

      Click "Find Now" to begin search.

      Find Now

      Forgot your password?

      Please provide your email address and we'll email you a reminder.

      Send it to me!

      Subscribe

      Please provide the information below to receive our mailings.

      Subscribe!
      Account Options
      1. Sign In... enter the resource center
      2. Access Materials... find my enrollments
      3. Forgot password?... memories fade
      4. Subscribe... to receive our mailings
      5. Contact us... if you have any questions, just ask
      6. Create a User Account* requires membership
  • Sign-in
  • Home
  • Products
  • Learning Paths
  • Calendar
  • Pricing
  • Communications
  • Contact Us
  • Help
  • About Us
  • Membership Check
  • Account

Instructor Blog - Credit Write Up

  1. Home
  2. Communications
  3. Instructor Blog
  4. Credit Write Up

Analytical Focus in the Credit Write-Up


  • admin

  • 7/8/2021 9:54:16 AM

  • 70

  • Credit Write Up
  • Copy / Share Link

Q: How do you translate A/R and Inventory Days into dollars of cash flow?

A: A ready way to calculate the cash flow impact of a change in A/R or Inventory Days is to first calculate actual A/R or Inventory Days.  With that calculation complete, one can recalculate the A/R balance using any combination of revised, or “what if”, values in the formula, e.g., “what if” A/R days were 50 days or Sales were $10,000,000, to compute a “what if” A/R balance. We can then simply compare the actual A/R balance and the “what if” A/R balance to identify the cash flow impact of a change in A/R Days or a change in Sales or a change in both.    

The formula for A/R Days is ((A/R) / (Sales)) x (365). Using the Seaside Marble, Inc financial statements that you’ll receive in the Solutions for the Exercise, we calculate actual 2017 and 2018 A/R Days as follows:

  • 2017 A/R Days = ($1,010,373 / $10,694,441) x (365) = 34.5 Days
  • 2018 A/R Days = ($1,184,472 / $15,717,587) x (365) = 27.5 Days  

If we project 2019 A/R Days to be 35.0 Days (a return to the 2017 level of A/R Days) instead of 2018 level of 27.5 Days, we now calculate the change in the A/R balance using projected A/R Days and projected Sales. We make the calculation by re-arranging the formula for A/R Days and solving for the 2019 A/R balance as follows:  

  • Projected 2019 A/R at 35 Days = ((Projected 2019 A/R Days) / (365)) x (Projected 2019 Sales)
  • Projected 2019 A/R at 35 Days = ((35.0) / (365)) x ($18,861,104) = $1,808,599

Had we assumed that A/R Days would remain at the 2018 level of 27.5 Days, our projected 2019 A/R balance would be $1,421,042, as follows:

  • Projected 2019 A/R at 27.5 Days = ((27.5) / (365)) x ($18,861,104) = $1,421,042

By comparing the projected A/R balance at the 2018 level of 27.5 days with the projected A/R balance at 35.0 days, we identify the impact of the change in projected A/R Days from 27.5 to 35.0 days. The difference between the two balances is $387,557 or $1,808,599 – $1,421,042 = $387,557, which is the cash impact – a cash outflow – resulting from the 7.5 day increase in A/R Days.

Since we know the cash impact from the 7.5 day increase in A/R Days, we can compute the cash impact from projected sales growth of 20% from $15,717,587 in 2018 to $18,861,104 in 2019. The change in the A/R balance from 2018 to 2019 is $624,127. The balance increases from $1,184,472 in 2018 to a projected balance of $1,808,599 in 2019 at 35 Days for Accounts Receivable. $387,557 of this increase is explained by the 7.5 increase in A/R Days. Therefore, the remaining $236,570 is explained by sales growth of 20% in 2019.

To compute the cash impact from the change in Inventory Days and the change in the growth of COGS, use the same approach as we’ve outlined above.

Course overview: Analytical Focus in the Credit Write-Up

Categories
  • Accounting Essentials(106)
  • Business Income Tax Returns(118)
  • Commercial Real Estate(32)
  • Communications(10)
  • Contractors(48)
  • Courses(1)
  • Covenants(9)
  • Credit Basics(89)
  • Credit College - Cash Flow(12)
  • Credit College - Commercial Business(203)
  • Credit College - CRE(213)
  • Credit College - Taxes(82)
  • Credit Curriculum(1)
  • Credit Write Up(31)
  • Debt Capacity(9)
  • EBITDA(25)
  • FASB95(10)
  • Financial Analysis(51)
  • Five Cs of Credit(10)
  • Fund Accounting(51)
  • General(0)
  • Global Cash Flow(49)
  • Healthcare(18)
  • Loan Documentation(50)
  • Minimum Financial Data(14)
  • Not for Profit Analysis(22)
  • Personal Income Tax Returns and Cash Flow(65)
  • Problem Loans - Loan Classification(2)
  • Projections(22)
  • Statement Spreading(6)
  • Stress Testing(1)
  • Technical Issues(8)
  • Testing(1)
  • Tools(1)
  • Trusts(3)
  • UCA Cash Flow(57)
  • User Community(6)
  • Working Capital and Cash Flow(27)
Shockproof! Training

PO Box 30304 Walnut Creek, CA 94598
1.866.237.7228 support@shockproof.com

  • About
  • Career Opportunities

© Copyright 2001-2023 Shockproof! Training