Hi All,
we have a revision group at work and I have been tasked to assess the liquidity of a real financial statement. I am trying to calculate receivables turnover for Damac Real Estate Limited based on their 2017 annual financial statement (found here - https://content.damacproperties.com/en/investor-relations/financial-information/damac-real-estate-development-limited/financial-statements)
The financial statement lists Revenue, but does not discern credit sales or cash sales. They follow the percent of completion means of recognising revenue as well. I need to calculate credit sales to get receivables turnover. i have looked at footnote 10 regarding trading receivables but it does not give an indication as to new trade receivables. Am i missing something here, or just being very silly (or both!)? I know I can use total revenue in the numerator but it is preferred to use credit sales.
If anyone could please help me figure out credit sales for the year i would be most appreciative!
This is the silly part I think. Just use total revenue, man. Do you know the % of cash sales of this specific company and also the typical % of cash sales in the industry? Most companies in most industries sell on credit.
We could debate about the theoretical benefits of calculating receivables turnover ratio using credit sales only and not total revenue, but…
I would do it this way:
Total revenue = cash sales + credit sales …(1)
Receivables as of SEP 2019 = Receivables as of DEC 2018 + Credit Sales of the period (from Jan 1st to Sep 30th) - Receivables Collected in the period …(2)
Need to calculate “Credit Sales”, right?
We can’t get it since “Receivables Collected in the period” are not displayed in the notes as a separate number. It appears in the cash flow statement as a net collection.
If you see note 10 more carefully, you can see that more than 1100 milllion of receivables as of SEP 2019 are completed but unbilled services, you got there that there is a lot of credit sales. Also, the billed receivables (825 million) got 30 days of credit.
The weird part of these numbers is that the company has A LOT of receivables compared to each sales level. The billed receivables only (825 million) as of SEP 2019 is bigger than 270 days of sales (751 million from jan 1st to sep 30th).
The company got 770 days of days of receivables as of sep 2019 (2145 / 751 x 270).
Summing up, use total revenue, don’t worry further on this.