Fundamentals of Financial Manageme...
Fundamentals of Financial Manageme...
REGRESSION AND RECEIVABLES Edwards Industries has $320 million in sales. The company expects that its sales will increase 12% this year. Edwards’ CFO uses a simple linear regression to forecast the company's receivables level for a given level of projected sales. On the basis of recent history, the estimated relationship between receivables and sales (in millions of dollars) is as lollop s:
Receivables = $9.25 + 0.07(Sales)
Given the estimated sales forecast and tile estimated relationship between receivables and sales, what are your forecasts of the company's year-end balance for receivables and its year-end days sales outstanding (DSO) ratio? Assume that DSO is calculated on the basis of a 365-day year.
To compute: The sales forecast, year ended receivables and the days sales outstanding ratio.
Introduction:
Sales Forecast:
Sales forecast is the important point that arises while making the future plans. The management generally takes 5 years financial records and then studies it and decides the amount of turnover for the current and upcoming years.
Given information:
Sales are $320 million.
Increase in sales by 12%
Formula to calculate the sales forecast is,
Substitute $320,000,000 for sales and 12% for increase in sales in the above equation
Formula to calculate receivables given in question is,
Substitute $358,400,000 for sales in the above equation
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