Use the following simplified 2015 balance sheet to show, in general terms, how a
ID: 2730256 • Letter: U
Question
Use the following simplified 2015 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change "ripple through" the financial statements (shown in thousands below) and influence the stock price? Does it appear that inventories could be adjusted? If so, how should that adjustment affect D'Leon'sExplanation / Answer
Per day sales = 7035600 / 365 = $ 19275.62
Under the new policy, account receivable = 19275.62 * 32 = $ 616819.84
Addition to Cash = Old account receivable - New account receivable
= 878000 - 616819.84
= $ 261180.16
Thus, improving the DSO has lead to an addition to cash. This cash will be used in repurchasing stock, debt payment etc. Repurchasing of stock and debt-payment will lead to business expansion and thus, ultimately improve the share price in long-run.