Okay, I will take up your challenge. The hardest part of the forecast is A/R because sales are prone to so much manipulation. Larson has set a goal (once again!) for DSO to drop to 100 days. Ordinarily, the calculation of A/R would be simple. It would be equal to Sales X 100/91, or 203.5 MM (an increase of $4.5 MM over the previous quater). But I don't believe that scenario will come to pass because of the bimodal nature of the sales time series. So instead, let's assume that payment expectations are based on an aging of A/R. Now we can't obtain this number without looking at the sales journal, but let me offer this as a guess: 30% of sales booked for the current quarter will pay; 65% of sales booked for the prior quarter will pay; and 5% of sales booked two quarters ago will pay. Based on this model, we would have receipts of $84 MM during the quarter. Thus, A/R would be expected to balloon by about $101MM to $300MM.
The big unknown in all of this is the nature of the A/R. If this is indeed due to a channel stuffed with unwanted inventory my scenario could be correct. If they are real sales to companies that pay slowly, then it is possible that the first estimate is closer to being correct (although not as a result of the simple-minded calculation indicated).
So to hedge my bets I will assume that an additional $50MM will come in from those sales booked in Q1 which will lead to an increase in A/R of $51MM.
Intrepid prediction: =====> A/R will be about $250MM at the end of Q3 if sales are around $185 MM. Analysts will quickly point out that DSO is 123 days, but they will fail to recognize that the bimodal nature of the sales makes this consistent with with 108 (or so) days.
Tomorrow I will think about the next component that will take its toll on my calculator: deferred revenues.
However, as a parting shot, let me say with respect to your prediction:
However, since the company will not be burning cash for the quarter ...
I don't think so ...
TTFN,
CTC |
