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8.6 Average Collection Period Ratio Analysis

The Average Collection Period Ratio is also known as the Days Receivable ratio. This is a key liquidity ratio for a small business like Real Estate Funding Solutions The average collection period ratio calculates the amount of days worth of receivables are outstanding by dividing the daily sales by the total accounts receivables for a small business like Real Estate Funding Solutions. The daily sales are of course the annual sales divided by 365.

As we can see from our analysis, the average collection period ratio for Real Estate Funding Solutions is projected to be 1.83 days for each of the three years of 2012,2013 and 2014 in our plan. This means that it will take a little under two days for us on average to collect the accounts recievable - this is of course no surprisesince the mortgage broker business requires payment upon delivery of goods and service with a few exceptions where the firm may actually partner with another firm on a very large deal and have to wait a long time for it's share of the proceeds from the transactions, most transactions result in a prompt payment from the lenders.

Again, while this ratio may not be very important in the real estate financing business in absolute terms, a major change in this ratio may imply that there is something changing like sales going down or recievables going up, that will warrant a closer look by management.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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