About this lesson
Understand Receivables as a part of Working Capital.
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Working Capital Adjustments Part 2
Understand working capital adjustments.
When to use
When constructing a basic financial model.
- Current assets minus current liabilities
- Working capital measures how much in liquid assets a company has available to build its business
- Analysts will often only consider trade receivables, trade payables and inventory
- The number can be positive or negative
Clearly, the credit period is the “gap” at the beginning of the time period, i.e. 247/1000 x 365 days = 90 days. This can be represented formulaically as:
Days Receivable = (Closing Debtors x Days in Period) / Sales in Period
Rearranging, this becomes:
Closing Debtors = (Sales in Period x Days Receivable) / Days in Period,
e.g. in our example: 247 = (1000 x 90) / 365.
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