Financial-Balance Sheet Part 4 Flashcards
Indicators for Analysis- DSO
Days of sales outstanding.- it is the number of days from a job is completed to when the invoice is paid.
How to improve DSO?
- Complete the billing document timely
- Invoice costumers daily
- Review DSO report and follow up on collections
What is what affect more DSO?
Disputes and cancelations destroy our DSO, as the client will restart the clock on when they pay us once the invoice is re-issued.
What is FOR?
Funds Outstanding Ratio.- the weight average age of all outstanding invoices from date of issue.
What is DIR?
Days to invoicing ratio.- It is the internal lag, showing the time from job completion to invoice.
- LAG 1 (Operation’s Lag) – time from job end date until ticket is uploaded to SAP
- LAG 2 (Finance Lag) – time from ticket uploaded to SAP until it’s invoiced to client.
Total LAG= Lag 1 + Lag 2
What is the DIR goal for total LAG?
3 days
What is Ageing Analysis?
Allows the company to track each job and determine if we’ve received cash for operations performed.
Report used to help determine specific issues with particular invoices.
Bad / Doubtful Debts provisioning: what are the concepts?
When SLB can confidently and reasonable assume that revenue that was recognized won’t be collected, after 12 months.
These amounts need to be written off, and expensed on the income statement.
Examples: invoice is disputed, client is bankrupt, SQ issues.
What is the difference between Bad / Doubtful Debts?
Bad Debt.- recorded in cost line, increases cost, unlikely to be collected
Doubtful Debt.- disagreement over services or product proved, reduction in revenue.
What are Accruals?
When goods and services have been received or rendered, we need to ensure that the cost is captured in the period it was incurred. (Matching principle).
Example:
Job Bonus: Job was complete in January, but bonus is paid 2 weeks later on February.
Since the revenue was recognized in January, we need to ACCRUE the bonus cost in January also (Matching Principle)
Equipment : A Fluid End is received on the last day of August, but the PO isn’t received in SWPS until the next day. We need to accrue the total cost of the Fluid End in August as this is when we physically received the good (Matching Principal).
What are provisions?
Similar to an accrual but is an estimated amount that will be paid out at a later date.
Example:
Service Quality: Ray broke his arm in May, and is planning to sue Company X for not providing safe working conditions. Potential cost is $1M
Income Taxes Payable: since we only pay income taxes annually, we create a provision that will account for 1/12 of the annual expense. The provision will accumulate until the taxes are paid.
