Accounts receivable is money customers owe for things already delivered. It's revenue that hasn't turned into cash yet. A current asset.
Accounts receivable is money customers owe for things already delivered. It's revenue that hasn't turned into cash yet. A current asset.
Accounts payable is the mirror. Money the company owes suppliers for things already received. A current liability.
Days sales outstanding is how long customers take to pay. Receivables divided by revenue times 365. Days payable outstanding is how long the company takes to pay. Payables divided by cost of goods sold times 365.
Put inventory days and receivable days together and subtract payable days. That's the cash conversion cycle. How many days the company's own cash is tied up between paying for stock and getting paid.
Apple for the year ended September 30 2023. In millions.
Derived. Receivable days. $29,508 million over $383,285 million is 0.077. Times 365 is 28.1 days. Apple's customers pay in about four weeks. Those customers are mostly carriers and retailers. Consumers pay at the till.
Payable days. $62,611 million over $214,137 million is 0.292. Times 365 is 106.7 days. Apple pays its suppliers in about three and a half months.
Cash conversion. 10.8 plus 28.1 minus 106.7 is negative 67.8 days. Apple gets paid about 68 days before it pays. That's the day 4 story with the mechanism shown.
The trap is receivables growing faster than sales.
If customers are taking longer to pay the company is lending them money. Sometimes that's a choice to win business. Often it's customers in trouble. And sometimes it's the company counting sales that haven't really happened. Receivables rising while sales are flat is the second earliest warning after inventory.
Receivables also carry an allowance. The company estimates what won't be collected and takes it off. A company that shrinks its allowance while receivables grow is making its profit look better than it is.
You're the finance lead at a supplier that sells to Apple. Your CEO wants to know why cash is tight when sales are up.
Apple's payable days are about 107. What does that mean for you?
Apple pays you in about three and a half months.
Your own suppliers want payment in 30 days. What's your cash gap?
About 77 days between paying your suppliers and being paid by Apple.
Sales to Apple doubled. What happens to the cash tied up in the gap?
It doubles too. Growth costs cash before it produces it.
Reply in one sentence.
We're financing Apple for about 77 days on every order and the bigger the orders the more cash we need up front.
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