Milwaukee Surgical Supplies
The firm's average collection period can be calculated by taking the weighted average of the payments days:
= 27 days average collection period
The current receivables balance would be calculated as follows. The company sells an average of $1,200,000 / 360 = $3,333.33 per day. At 27 days outstanding the current receivables balance would be:
$3,333.33 * 27 = $90,000
If all non-discount customers paid on the 30th day, the average collection period would now be:
+ 21 = 24 day average collection period.
The new receivables balance would be as follows:
$3,333.33 * 24 = $80,000
The savings from the toughened credit policy would be the different in receivables level multiplied by the cost per annum:
(90,000 -- 80,000) * .08
10,000 * .08...
Operating indicator analysis can use the financial statements, but also sometimes uses industry-standard or proprietary performance measures as well
Under GAAP, the financial statements are consistent and this benefits the analyst, because the statements are comparable to those of competitor or to those of the same company in previous years. Financial statement analysis also seeks to utilize financial ratios to gain insights into the firm's performance. The financial statements themselves illustrate the performance, but the ratios provide a framework for understanding that performance in more detail (Loth, 2011).
Operating indicator analysis uses both the…
