Mike, Thanks for your analysis, and I believe you are partially correct. The issue is not so much the A/R to A/P ratio as this is healthy. For me, the issue is accruing sales so far in advance.
A review of the the accoungting entry is helpful here. When a sale is made, A/R is debited and Income credited. When the money is collected, Cash is debited and A/R is credited.
Therefore, my concern with A/R is that all of the cash, and a bit more, that went into the bank during Q1 97 was applied to A/R for Q4 96. The A/R to A/P looks healthy because Corel is obviously paying bills within terms of net 30 or 60, while giving distributors favorable financing beyond 90 days. Hence cash is so low. This means Corel is offering terms longer than normal in order to ship larger quantities of product than current demand. Without offering these extremely favorable terms, thereby accruing sales so far in advance, the losses reported earlier would have been deeper.
I'm sure Corel will rectify the situation when demand increases for their new products. But from an "investors" point of view, this is, as Skye said earlier, "a little bit fishy."
Up, Up, & Away,
Scott |
