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Average Collection Period

  • 27-03-2011 1:42pm
    #1
    Wardie23
    Registered Users, Registered Users 2 Posts: 33 ✭


    Trying to work out the average collection period for Tesco PLC but cant manage to get my head around it at all. Cant work out which figures to use (I know its accounts recievable/Credit Sales x 365) but not sure how to get these figures from the annual report?


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  • #2
    hivizman
    Registered Users, Registered Users 2 Posts: 1,163 ✭✭✭hivizman


    Wardie23 wrote: »
    Trying to work out the average collection period for Tesco PLC but cant manage to get my head around it at all. Cant work out which figures to use (I know its accounts recievable/Credit Sales x 365) but not sure how to get these figures from the annual report?

    For a retail supermarket company like Tesco, the average collection period isn't a particularly significant measure, because most of Tesco's sales are for cash or cash equivalents rather than on credit. In Tesco's annual financial statements for the period to 27 February 2010, Trade and Other Receivables are shown on the Group Balance Sheet at £1,888 million. Of this total, Prepayments and Accrued Income represent £337 million and Amounts Owed by Joint Ventures and Associates to £315 million, leaving Other Receivables of £1,236 million. It's not clear whether these items are actually due from normal retail customers (see Note 16).

    In addition, there are Loans and Advances to Customers of £4,118 million (see Note 17), of which £2,268 million are due within one year, but these are in relation to Tesco Bank (probably mainly Tesco credit card balances) rather than arising from credit sales.

    The financial statements don't seem to provide a split between credit and cash sales.

    This is a good example of how, in financial statement analysis, you need to consider whether particular ratios or other measures actually make sense for the business you are examining.


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