(snip)"As our economy struggles to stabilize and start growing again, there is a high focus on debt and debt repayment. Areas of concern range from the massive amounts of consumer debt, to record-breaking government debt, to corporate debt — particularly low-quality debt, which is increasing at record rates.
One item that has escaped scrutiny is the amount of Accounts Receivable held on the books of U.S. businesses. For large U.S. public companies (those with market capitalization is in excess of $250 million), total Receivables exceeded $41 trillion in the first Quarter of 2010. In the first Quarter of 2009, Accounts Receivable totaled $36 trillion.
Not only do these large Receivables represent an absolute high level of debt owed by others, but the companies have taken on ever-increasing Receivables risk.
This 14% growth in Receivables substantially exceeds growth in corporate revenues over the one-year period.
It could be argued that some of the increase in Accounts Receivable is a reflection of improved business. Unfortunately, there is one important negative sign: Average Days Payable for all U.S. public corporations have stretched from 93 days to 136 days. A substantial increase in Receivables may not only reflect slow pay by customers; it may also include low estimations for Uncollectibles, early recognition of Sales, or even fictitious Sales. The misrepresentation of Accounts Receivable, or improper Revenue recognition, is the leading fraud technique identified by the Committee of Sponsoring Organizations of the Treadway Commission () in its comprehensive study analyzing fraudulent financial reporting for the period 1998 to 2007.
While there is talk of improving corporate liquidity, I see no such evidence in the numbers above. This increase in Days Payable reflects poorly on the quality of the Receivables held."(snip)
from
Thus a fundamental question exists in regard to this commentary which basically mirrors a question from the thread discussing GM's purchase of a Subprime Auto Loan finance company. Does it really count as a 'recovery' when increased 'sales' are being executed, but not actually being paid for ?




Reply With Quote

Bookmarks