Efficiency Flashcards
What does Trade Receivable Days measure?
Trade Receivable Days measure the average number of days debtors take to pay their invoices.
Impact of High Trade Receivable Days
A high number of days suggests poor debt collection, leading to potential cash flow issues.
Example of Trade Receivable Days Calculation
Trade Receivables = £2300
Credit Sales = £43750
(2300 ÷ 43750) × 365 = 19 days
Industry Standard = 30 days → The business is handling debtors well.
What does Trade Payable Days measure?
Trade Payable Days measure the average number of days a business takes to pay its suppliers (creditors).
Impact of High Trade Payable Days
Taking longer to pay may indicate cash flow problems, especially if payment exceeds supplier terms.
Example of Trade Payable Days Calculation
Trade Payables = £5600
Credit Purchases = £37990
(5600 ÷ 37990) × 365 = 54 days
Credit Terms = 30 days → This suggests potential cash flow issues.
What does Inventory Turnover Days measure?
Inventory Turnover Days measure the average number of days a business holds its stock before selling it.
Impact of High Inventory Turnover Days
High days mean money is tied up in unsold stock, while low days are common for perishable goods.
Example of Inventory Turnover Days Calculation
Inventory = £16500
Cost of Sales = £92700
(16500 ÷ 92700) × 365 = taking 65 days before selling its stocks.
The business restocks 6 times a year, showing regular stock turnover.
