ANALYSIS OF ACCOUNTS RECEIVABLE MANAGEMENT …
85
ANALYSIS OF ACCOUNTS RECEIVABLE MANAGEMENT TOWARDS LIQUIDITY, CASH CONVERSION CYCLE, AND PROFITABILITY OF PT. XYZ SKRIPSI By Mira Meutia Utami Galy 008201000004 Presented to Faculty of Business, President University In partial fulfillment of the requirements for Bachelor Degree in Economics, Major in Accounting PRESIDENT UNIVERSITY Cikarang Baru – Bekasi Indonesia 2014
Transcript of ANALYSIS OF ACCOUNTS RECEIVABLE MANAGEMENT …
ANALYSIS OF ACCOUNTS RECEIVABLE MANAGEMENT
TOWARDS LIQUIDITY, CASH CONVERSION CYCLE, AND
PROFITABILITY OF PT. XYZ
SKRIPSI
By
Mira Meutia Utami Galy
008201000004
Presented to
Faculty of Business, President University
In partial fulfillment of the requirements
for
Bachelor Degree in Economics, Major in Accounting
PRESIDENT UNIVERSITY
Cikarang Baru – Bekasi
Indonesia
2014
i
ANALYSIS OF ACCOUNTS RECEIVABLE
MANAGEMENT TOWARDS LIQUIDITY, CASH
CONVERSION CYCLE, AND PROFITABILITY OF PT.
XYZ
SKRIPSI
By
Mira Meutia Utami Galy
008201000004
Presented to
The Faculty of Business, President University
In partial fulfillment of the requirements
for
Bachelor Degree in Economics, Major in Accounting
PRESIDENT UNIVERSITY
Cikarang Baru – Bekasi
Indonesia
2014
ii
PANEL OF EXAMINERS APPROVAL SHEET
Herewith, the Panel of Examiners declares that the skripsi entitled “ANALYSIS OF
ACCOUNTS RECEIVABLE MANAGEMENT TOWARDS LIQUIDITY, CASH
CONVERSION CYCLE, AND PROFITABILITY OF PT. XYZ” submitted by Mira
Meutia Utami Galy, Accounting Study Program, Faculty of Business, has been assessed
and proved to pass the Oral Examination on Tuesday, 11 March 2014.
Chair, Panel of Examiner,
DR. Sumarno Zain SE., Ak., MBA.
Examiner 1
Evita Puspitasari SE., MSi., A
Examiner 2
DR. Fachruzzaman SE., MDM., Ak., CA
iii
SKRIPSI ADVISER
RECOMMENDATION LETTER
This skripsi entitled “ANALYSIS OF ACCOUNTS RECEIVABLE MANAGEMENT
TOWARDS LIQUIDITY, CASH CONVERSION CYCLE, AND PROFITABILITY
OF PT. XYZ” prepared and submitted by Mira Meutia Utami Galy in partial fulfillment
of the requirements for bachelor degree in the Faculty of Business has been reviewed and
found to have satisfied the requirements for a skripsi fit to be examined. I therefore
recommend this thesis for Oral Defense.
Cikarang, Indonesia, January 27, 2014
DR. Sumarno Zain SE., Ak., MBA. Evita Puspitasari SE., MSi., Ak
(Head of Accounting Study Program) (Skripsi Adviser)
iv
DECLARATION OF ORIGINALITY
I hereby declare that the skripsi entitled “ANALYSIS OF ACCOUNTS RECEIVABLE
MANAGEMENT TOWARDS LIQUIDITY, CASH CONVERSION CYCLE, AND
PROFITABILITY OF PT. XYZ” is originally written by myself based on my own
research and has never been used for any other purpose before. I, therefore, request for
Oral Defense of the Skripsi.
Cikarang, Indonesia, January 27, 2014
Researcher,
Mira Meutia Utami Galy
008201000004
v
ABSTRACT
Title : Accounts Receivable Management towards Liquidity, Cash Conversion
Cycle, and Profitability of PT. XYZ
Economic growth in Indonesia is growing rapidly over the last few years. This economic
growth is supported by small to large industries. One of the supporting industries comes
from automotive manufacturing industry. PT. XYZ is one of the biggest global car
manufacturing which already run the business in Indonesia for decades. Although PT.
XYZ already run the business in Indonesia for a long time, the sales of PT. XYZ is still
far below the company’s competitors. The purpose of this research is to analyze the
accounts receivable management of PT. XYZ, also to analyze and determine the
company’s liquidity, cash conversion cycle, and profitability through calculation of PT.
XYZ’s liquidity ratio, cash conversion cycle, and profitability ratio from year 2008 until
year 2012.
The quantitative data is obtained from the calculation of data in PT. XYZ’s statement of
financial position and statement of comprehensive income. The data is calculated by
using accounts receivable turnover, average collection period, liquidity ratio, cash
conversion cycle, and profitability ratio formulas.
PT. XYZ already performed the management and controlling process based on the rules
applied in PT. XYZ, but in the practice there still many dealers that do not comply with
the rules applied by PT. XYZ. Factors that affecting the amount of accounts receivable
are divided into internal factors and external factor. The internal factors are credit sales,
billing effort, sales procedure, and doubtful accounts. The external factor is dealers’
financial condition.
Based on the analysis of liquidity, cash conversion cycle, and profitability of PT. XYZ,
generally the liquidity, cash conversion cycle, and profitability is still fluctuating. The
liquidity, cash conversion cycle and profitability is declining start from year 2011, it is
because the appliance of the new procedure in year 2011. PT. XYZ still has a liquidity
problem until year 2012, it can be seen from the result of the liquidity ratios which
average below 2.
Keywords: Accounts receivable management, accounts receivable turnover ratio,
average collection period, liquidity ratio, cash conversion cycle, profitability ratio
vi
ACKNOWLEDGEMENT
First of all, the researcher would like to say thank you to ALLAH SWT, who
always guide me and give me strength to finish this thesis. This thesis has been prepared
by one of the main goals is to complete the final task in attempt to obtain The Bachelor
Degree of Economics Major in Accounting. Furthermore, this thesis has become a chance
for a researcher to analyze the Accounts Receivable Management towards Liquidity,
Cash Conversion Cycle, and Profitability of PT. XYZ
The researcher realizes that this thesis cannot be finished without supports,
assistance from some parties. Therefore in this occasion, the researcher would like to say
gratitude and highest appreciation to:
1. My beloved Mom, Dad, Sisters, and all of my big families who always support
and pray for me so I could successfully finish in study at President University.
2. Mrs. Evita Puspitasari as my Skripsi Adviser who always spend her time to help
and give advices to researcher in completing this thesis.
3. My beloved Bion Aldo Syarief Sayangbati who also support me at all time, care
for me, and give me strength so we could finish our thesis and graduate together.
4. Mrs. Betty Nurbaety who always provide me with data so I can finish this thesis.
Thank you for your effort, Mrs.
5. Backline Team: Adrianti Suseno, Hani Amelia, Wahyu Dharmawan, Arief
Indiarto. Even though we are Backline, but we are definitely front liners! Thank
you so much guys for all the great moments!
6. My lifetime best friends, Manda, Cyntia, and Yogi. Thank you for the supports
from junior high until I write this skripsi and graduate from college. Hope we will
always be best friends forever! I love you guys!
7. All my friends from President University Batch 2010, especially Azkia Safitri,
Rahman Kurniawan, Ryanda Rusadi, Galih Taufiq Nabiyurrahma, and all that I
can’t mention here. Thank you so much for the precious moments!
8. All Accounting students Batch 2010. Good luck for your career! ACC
Ciayooooo!
vii
9. All lecturer and staff of President University who always worked passionately,
and give us all as student a precious experiences and knowledge. I hope all of you
will always healthy and be more succesful in the future.
The researcher realized the material of this thesis is still far from perfect, therefore
with wholeheartedly the researcher would like to expect any suggestion, critic from all
parties for the improvement of this research in the future. In the end, the researcher hopes
this thesis could become useful information and future reference to all parties.
Cikarang, 27 January 2014
Mira Meutia Utami Galy
viii
TABLE OF CONTENT
Page
SKRIPSI TITLE………………………………………………………………………..…… i
PANEL OF EXAMINER APPROVAL SHEET…………………………………............... ii
SKRIPSI ADVISER RECOMMENDATION LETTER…………………………............... iii
DECLARATION OF ORIGINALITY…………………………………………………….. iv
ABSTRACT………………………………………………………………………………… v
ACKNOWLEDGMENT…………………………………………………………………… vi
TABLE OF CONTENT…………………………………………………………………… viii
LIST OF TABLES………………………………………………………………………….. xi
LIST OF FIGURES..………………………………………………………………………. xii
CHAPTER I : INTRODUCTION…………………………………………………….. 1
1.1 Research Background……………………………………………… 1
1.2 Problem Identification and Statement……………………………… 4
1.3 Research Scope and Limitation……………………………………. 5
1.4 Research Objectives………………………………………………... 6
1.5 Research Benefits…………………………………………………... 7
CHAPTER II : LITERATURE REVIEW……………………………………………… 8
2.1 Definition of Receivable…………………………………………... 8
2.2 Management of Accounts Receivable…………………………….. 9
2.3 Factors that Affecting The Accounts Receivable Amount………. 11
2.4 Credit Analysis…………………………………………………… 13
2.5 Liquidity………………………………………………………….. 14
2.5.1 Accounts Receivable Management towards Liquidity........... 15
2.6 Profitability………………………………………………………. 16
2.6.1 Accounts Receivable Management towards Profitability……17
2.7 Cash Conversion Cycle…………………………………………... 17
2.8 Comparative Analysis……………………………………………. 20
2.9 Previous Research…..……………………………………………. 21
ix
2.10 Theoretical Framework…..…………………………………...... 22
CHAPTER III : DATA PROCESSING METHOD AND COMPANY PROFILE…... 25
3.1 Data Collecting and Processing…………………………………. 25
3.1.1 Inquiry of The Client (Interviews)…………………………. 25
3.1.2 Documentation……………………………………………... 29
3.1.3 Observation………………………………………………… 30
3.1.4 Analytical Procedure……………………………………….. 31
3.2 Company Profile………………………………………………... 32
3.2.1 Vision and Mission of PT. XYZ………………………….... 34
3.2.2 Products of PT. XYZ………………………………………. 34
3.2.3 Market of PT. XYZ………………………………………… 35
CHAPTER IV : DATA ANALYSIS AND EVALUATION………………………….. 36
4.1 Credit sales and Accounts Receivable Flow of PT. XYZ………... 36
4.2 Accounts Receivable Management of PT. XYZ…………………. 39
4.3 Factors Affecting Receivables in PT. XYZ……………………… 42
4.4 Accounts Receivable Performance Assessment of PT. XYZ……. 45
4.4.1 Accounts Receivable Turnover Ratio………………………... 45
4.4.2 Average Collection Period…………………………………… 47
4.5 Liquidity Analysis……………………………………………….. 47
4.5.1 Current Ratio………………………………………………… 48
4.5.2 Quick Ratio………………………………………………….. 49
4.5.3 Cash Ratio…………………………………………………… 50
4.6 Cash Conversion Cycle Analysis………………………………... 51
4.6.1 Days Sales Outstanding……………………………………... 52
4.6.2 Days Sales of Inventory……………………………………... 53
4.6.3 Days Payable Outstanding…………………………………... 54
4.7 Profitability Analysis…………………………………………… 54
4.7.1 Gross Profit Margin………………………………………… 55
4.7.2 Net Profit Margin…………………………………………… 56
4.7.3 Return on Assets (ROA)……………………………………. 57
x
CHAPTER V: CONCLUSION AND RECOMMENDATION………………………. 59
1. Conclusion………………………………………………………… 59
2. Recommendation………………………………………………….. 60
LIST OF REFERENCES…………………………………………………………………… 61
APPENDICES……………………………………………………………………………… 63
xi
LIST OF TABLES
No Page
1.1 Accounts receivable and net sales year 2008 – 2012 in Rp (,000)…………………… 4
4.1 PT. XYZ’s term of payment…………………………………………………………. 40
4.2 PT. XYZ’s policy of allowance for doubtful accounts………………………………. 41
4.3 PT. XYZ’s allowance for doubtful accounts as of December 2012…………………. 41
4.4 Accounts receivable and credit sales balance year 2010 to 2011……………………. 44
4.5 PT. XYZ’s Accounts Receivable Turnover Ratio…………………………………… 45
4.6 PT. XYZ’s Average Collection Period………………………………………………. 47
4.7 PT. XYZ’s Liquidity Ratio…………………………………………………………... 48
4.8 PT. XYZ’s Cash Conversion Cycle Analysis………………………………………... 52
4.9 PT. XYZ’s Profitability Ratios………………………………………………………. 55
xii
LIST OF FIGURES
No Page
1.1 Car sales year 2008-2012…………………………………………………………..... 1
1.2 Sales of three big car manufacturing companies in Indonesia (in units)……………. 3
2.1 Cash Conversion Cycle……………………………………………………………… 18
2.2 Theoretical Framework……………………………………………………………… 24
4.1 PT. XYZ’s credit sales and accounts receivable amount from year 2008-2012…….. 43
4.2 PT. XYZ’s Current Ratio……………………………………………………………. 48
4.3 PT. XYZ’s Quick Ratio……………………………………………………………… 49
4.4 PT. XYZ’s Cash Ratio……………………………………………………………….. 50
4.5 PT. XYZ’s Days Sales Outstanding…………………………………………………. 52
4.6 PT. XYZ’s Days Sales of Inventory…………………………………………………. 53
4.7 PT. XYZ’s Days Payable Outstanding………………………………………………. 54
4.8 PT. XYZ’s Gross Profit Margin……………………………………………………… 55
4.9 PT. XYZ’s Net Profit Margin………………………………………………………… 56
4.10 PT. XYZ’s Return on Assets………………………………………………………... 57
1
CHAPTER I
INTRODUCTION
1.1 Research Background
Economic growth in Indonesia is growing rapidly over the last few years. This economic
growth is supported by small to large industries. One of the supporting industries comes from
automotive manufacturing industry. According to BPS (Badan Pusat Statistik) of Indonesia, up
until 2012 there are 282 companies engaged in automotive industry in Indonesia. The sales
derived from automotive industry increased every year. In the last five years, motorcycle sales in
Indonesia is increase for about 9.96% in average, while the car sales is increase about 31.80% in
average.
Cars are in a great demand today, moreover with the government regulation about Low
Cost Green Car. More Indonesian people turned to use private car as their transportation with the
reason of security and comfort. The following figure is the car sales from year 2008 to 2012:
Figure 1.1 Car sales year 2008-2012
Source: Koran Sindo 25 Oktober 2013
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2008 2009 2010 2011 2012
2
With the growing of car manufacturing condition in Indonesia, Indonesia becomes an
excellent business field for the investors who want to invest in car manufacturing in Indonesia.
Today, there are many foreign and local car brands adorn the car manufacturing industry in
Indonesia, from the Low Cost Green Car to the luxury cars. The foreign and local car
manufacturing companies have to able to compete to obtain the customers‟ trust. Therefore the
companies require an appropriate strategies formulation to keep survive in the competition and
continue operating. One of the strategies in managing fund for the continuity of the companies‟
operating activity with the optimal efficiency level is by concerning to the cash flow and
liquidity management.
According to Dhahiri (2010), cash flow and liquidity of a car manufacturing company is
potentially decreasing if the company can‟t maintain the demand and also the profitability of the
company. Profitability is also an important thing to be maintained. It is because as an investor
who has intention to be a dealer of a car manufacturing company, analyzing the profitability of
the company is one of the things to be done before start investing in that company. The
profitability here means how well the company sells the products with the cost of sales remain
low.
A company needs a strategy therefore the company can manage the cash flow, liquidity,
and profitability well. One of the strategies is by managing the accounts receivable well.
Accounts receivable are one of the current assets which is the amount owed by other company or
institution that have to be collected within one year. Accounts receivable needs to be managed
because accounts receivable is one of the liquid assets. Accounts receivable only needs one step
further to be converted into cash, the most liquid asset of a company. If a company has many
liquid assets to be converted into cash, definitely the cash inflow, liquidity, and profitability of
3
the company can be increased. The profitability is also increase because the company can keep
producing inventories to be sold then resulting to a high sales. Therefore, it is important for a
company to manage its accounts receivable.
PT. XYZ is one of the biggest global car manufacturing which already run the business in
Indonesia for decades. Although PT. XYZ already run the business in Indonesia for a long time,
the sales of PT. XYZ is still far below the company‟s competitors. The following figure is the
chart of car sales of three big car manufacturing company as a comparison to PT. XYZ‟s sales:
Figure 1.2 Sales of three big car manufacturing companies in Indonesia (in units)
Source: Kompas Otomotif 24 Februari 2013
Credit sales is one of the attractions for customers, for car manufacturing companies, the
customers are dealers. Because it is a nature that human wants to get benefit as much as the
human can get. Then, the credit sales will generate accounts receivable for the company, and
within one year the accounts receivable will converted into cash. But, the higher the accounts
receivable, the higher the risk of uncollected accounts receivable. To avoid losses, a company
needs to manage the accounts receivable well, therefore the company can maintain the
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2008 2009 2010 2011 2012
PT. XYZ
Toyota
Honda
4
Accounts Receivable Rp 19,076,040 Rp 14,860,450 Rp 18,307,891 Rp 10,686,675 Rp 4,251,122
Rp 503,349,240 Rp 557,025,540 Rp 837,807,068 Rp 169,615,730 Rp 339,991,439Net Sales
company‟s cash flow, liquidity, and it will increase the profitability of the company. PT. XYZ‟s
net sales is drastically decrease from year 2010 to 2011, and the accounts receivable is
decreasing from year to year.
Table 1.1 Accounts receivable and net sales year 2008-2012 in Rp (,000)
Source: PT. XYZ’s financial statement
Based on the description above, the writer would like to analyze the accounts receivable
management of PT. XYZ and its influence towards the cash flow, liquidity, and profitability of
the company. Writer would like to use Cash Conversion Cycle analysis to analyze the stability of
the company‟s cash flow. Cash Conversion Cycle analysis is one of the analysis tools to analyze
how many days the cash outflow can be converted back to the company as a cash inflow by
minimizing the company‟s working capital. Therefore the writer would like to do a research with
title “Analysis of Accounts Receivable Management towards Liquidity, Cash Conversion Cycle,
and Profitability of PT. XYZ”
1.2 Problem Identification and Statement
PT. XYZ is one of the biggest global manufacturing car companies which had run the
business in Indonesia for decades. But during the company‟s business in Indonesia, the prestige
of PT. XYZ is still far below the competitors. It is proven by the figure 2 above, PT. XYZ‟s sales
is far below two of the company‟s competitor.
In a line with the research, writer would raise some questions that help to analyze the
accounts receivable management towards the liquidity, cash conversion cycle, and profitability
of PT. XYZ from year 2008 to 2012.
5
1. How is PT.XYZ‟s liquidity, cash conversion cycle, and profitability from year 2008 until
2012?
2. How the accounts receivable of PT. XYZ affects the company‟s liquidity, cash conversion
cycle, and profitability?
1.3 Research Scope and Limitation
This research focused on „Analysis of Accounts Receivable Management towards
Liquidity, Cash Conversion Cycle, and Profitability of PT. XYZ‟. PT. XYZ is operating in
automotive industry which produces cars and distributes them to dealers.
Research is restricted to the liquidity, cash conversion cycle, and profitability analysis of
PT. XYZ from year 2008 until 2012. Writer decided to use data from year 2008 until 2012
because according to Block and Hirt (2005), the most reliable data for analyzing the financial
performance is data get from five years company operation. Because if it is lower than five years,
the data will be not reliable enough, and if it is more than five years, the data will be out of date.
The accounts receivable management discussed in this research is about how PT. XYZ
manages its accounts receivable, factors that affect the amount of accounts receivable, and how
PT. XYZ collects its accounts receivables. Data of accounts receivable management and
financial statement gathered from Accounting and Finance Department of PT. XYZ. The
accounts receivable management flow is gathered from Sales and Marketing Finance division,
and the financial statement which use to get information about the liquidity ratio, cash
conversion cycle, and profitability ratio is gathered from General Accounting division. Both
Sales and Marketing Finance and General Accounting divisions are supporting Accounting and
Finance Department in processing the data.
6
Observation to PT. XYZ‟s plant is quite limited; the main reason is the safety for visitor
is highly required. Moreover, PT. XYZ doesn‟t allow writer to state the company‟s name in this
research. The reason is confidentiality of company‟s data.
1.4 Research Objectives
Accounts receivable is one the current assets that has an impact to the company‟s
liquidity and profitability. One of the ways to maintain the company‟s liquidity, cash flow and
profitability high is by managing the accounts receivable well. Therefore, writer decided to do
research about accounts receivable management and its influence with liquidity, cash conversion
cycle, and profitability through this research. This research has several objectives:
1. Analyze and determine the company‟s liquidity, cash conversion cycle, and profitability
through calculation of PT. XYZ‟s liquidity ratio, cash conversion cycle, and profitability
ratio from year 2008 until year 2012.
2. Ana;yze the influence of accounts receivable management towards company‟s liquidity, cash
conversion cycle, and profitability.
Based on the purpose above, the main objective of this research basically is to help Sales
and Marketing Finance and General Accounting division to evaluate PT. XYZ‟s accounts
receivable management and the company‟s liquidity, cash conversion cycle, and profitability
thus the managers of PT. XYZ can take decision to improve the company‟s accounts receivable
management, and hopefully will increase the company‟s liquidity, cash conversion cycle, and
profitability.
7
1.5 Research Benefits
In accordance with the objectives described above, this research is benefited the parties
participated in this research, especially for the managers of PT. XYZ, as an evaluation tool to
evaluate the company‟s accounts receivable management and liquidity, cash flow, and
profitability, and also as a consideration in the decision making related to receivable
management of the company.
Benefits obtained from this research include:
1. For company
This research can assist management of PT. XYZ as an evaluation tool for PT. XYZ to
evaluate the performance done by PT. XYZ and to evaluate procedure regulated in PT. XYZ,
and also as a consideration in improving company‟s accounts receivable management.
Therefore the company‟s liquidity and profitability will be increase.
2. For readers
This research can support the existing theory about financial ratios and give better
understanding to the students who still taking their study in college and also wider people
about how a company supposed to manage the receivable. Also this research can be a
reference for future research.
8
CHAPTER II
LITERATURE REVIEW
2.1 Definition of Receivable
Implementation of the system on credit sales made by company is one of the company's
strategies to increase sales volume. Credit sales do not immediately generate cash receipts, but
gives rise to what is called the receivables, therefore in other words receivables arise because the
company implemented the system on credit sales.
According to Weygandt, Kimmel, and Kieso (2011), receivable is amount due from
individual and other companies. Receivables are claims to be collected in cash. Receivables are
frequently classified as:
1. Trade Receivable
Trade receivable is receivable that result from company‟s trading activities. Accounts
receivable and Notes receivable is classified as trade receivable. Accounts receivable are
amounts owed by customers on account. They result from the sale of goods and services.
Notes receivable are claims for which formal instruments of credit are issued as proof of the
debt.
Accounts receivable usually collected within 10 to 60 days, or within one year, therefore
accounts receivable included in current asset. While notes receivable normally extends for
time periods of 60-90 days or longer and requires the debtor to pay interest.
9
2. Non Trade Receivable (Other Receivable)
Other receivable does not generally result from the operation of the business. Therefore
companies generally classify and report them as separate items in the statement of financial
position
2.2 Management of Accounts Receivable
Accounts receivable management is important for a company. It is because there is
money tied with the accounts receivable. The failure of managing the accounts receivable can
give a bad effect to the company. A company should pay more attention to the accounts
receivable, it is because accounts receivable has a tight relationship with the company‟s main
business.
Brigham and Houston (2001) in Dhahiri‟s research (2010) explained that accounts
receivable management started with the decision whether to give credit to a customer or not, in
accounts receivable management there also stated ways to collect the uncollectible accounts. A
control in accounts receivable is needed because if the accounts receivable are no controlled, the
accounts receivable will accumulate, the cash flow will decrease and the uncollectible accounts
will cover the profit generated from sales. Accounts receivable management learns how accounts
receivable can be managed efficiently. The average of accounts receivable is determined by two
factors, there are daily credit sales and the average accounts receivable collection period. Those
factors are depending to the credit policy run by the company. Accounts receivable contain risk
in the billing process, or it usually called bad debts. The uncollectible accounts receivable will
generate credit costs. The credit costs are:
10
1. Bad debt losses
2. Higher billing cost
3. The average collection period will be longer, it affected to the capital needed by a
company to operate.
Keown, Martin, Petty, Scott (2010), explained that an accounts receivable management
of a company depends on what products are sold by credit. The more products sold by credit, the
higher the asset proportion tied with accounts receivable. Besides, because of cash inflow from
sales cannot be invested unless the accounts receivable paid, control of the accounts receivable
became more important. The efficient accounts receivable billing determines company‟s
profitability and liquidity.
According to Block and Hirt (2005), accounts receivable is an investment.
“As a true of other current assets, accounts receivable should be thought as an
investment. The level of accounts receivable should not be judged too high or too
low based on historical standards of industry norms, but rather the test should be
whether the level of return we are able to earn from this asset equals or exceeds
the potential gain from other investment.”
An investment is a type of saving that supposed to give a profit, not lose. So does
accounts receivable. Because of the fact that there is money tied with the accounts receivable, the
manager of a company should carefully manage the accounts receivable, therefore the company
will not suffer lose later.
Managers or external users of financial statement should measure how efficient a
company uses the assets, especially for a several working capital elements such as accounts
receivable, inventory, and trade payable. General relation that usually used to control the
receivable is average collection period. (Stice, 2004)
11
The importance of an accounts receivable management can give effect to company‟s
financial statement, and then it can show the user to the company‟s performance. According to
Warren, Reeve, and Fess (2005), related with the receivable control, a company makes a serious
effort to limit the uncollectible accounts by applying a variety of control tools. The most
important control is the control related with the credit validation function. This control involves
the inquiry of customer‟s credibility. As for the method to record the uncollectible accounts are
by direct write off method or allowance method. Therefore, financial manager‟s role is take
effect in controlling the receivables which are having a tight connection with the company‟s
financial condition as a whole.
2.3 Factors that Affecting The Accounts Receivable Amount
There are internal factors and external factors affecting the accounts receivable amount.
Internal factors are factors which are still in company‟s control. While external factors are
factors from outside of the company and the company cannot control the factors at all. Internal
factors are the company‟s policy related to the accounts receivable, which are:
According to Keown, Martin, Petty, and Scott (2010), factors that affecting the amount of
the investment in a receivable are:
1. Credit Sales Percentage
The higher the credit sales, the accounts receivable will get higher also. When a company‟s
sales is growing, the investment level in an accounts receivable will grow as well.
2. Terms of Trade
The stated terms of credit extension will have a strong impact on the eventual size of the
accounts receivable balance. Terms of trade identify the possibility of discount for an earlier
payment, discount period, and the total credit period. Offering the term 2/10, net 30, enables
12
the customer to deduct 2 percent from the face amount of the bill when paying within the
first 10 days, but if the discount is not taken, the customer must remit the full amount within
30 days.
3. Expenses
The expenses are the expenses from the cost of receivable, such as cost of service, cost of
place and equipment.
4. Doubtful accounts
The higher the doubtful account, the chances for the receivable to be uncollectible is higher
also.
5. Billing Effort
The key to maintain the billing control is the fact that probability of failure in collecting the
debt is increasing as well as the increase of accounts receivable age. Receivable control
focuses on the control and elimination of receivable which overdue. The effort in collecting
the accounts receivable will affected the amount of the accounts receivable.
Although company cannot control the external factors, these variables can affect the
company. The external factors are as follow:
1. Type of Customer
Determining the type of customer is the important factor in reviewing customer‟s
qualification in getting the credit. When a company gets a less feasible customer to get credit,
it will cause a higher cost to collect the accounts receivable.
2. Economic condition
The economic condition of a country is sometimes fluctuating. Inflation is one of the
parameter of economic condition. When the inflation is high, it will affect almost all the cost
13
in the country. The demand tends to fall down when the inflation is high. When the demand
is fall, the sales tend to fall also, and it will affect the accounts receivable.
3. Exchange rate fluctuation
The exchange rate of a country is hard to be predicted. When a company sells the products in
foreign currency, the company needs to pay attention to the exchange rate. Because the
exchange rate can lead to either lose or gain of the foreign exchange.
2.4 Credit Analysis
According to Block and Hirt (2005), a company must determine the nature of the credit
risk based on the basis of prior records of payment, financial stability, current net worth, and
other factors. When a receivable is created, credit has been extended to the customer who is
expected to pay according to the terms of trade. Company refers to the 5 Cs of credit as an
indication of whether receivable can be paid on time, late, or not at all.
The 5 Cs are:
1. Character
Character refers to the moral and ethical quality of the customer who is responsible to pay the
receivable. Customer with high ethical standards is expected to be a good credit risk. A
decision on character is considered as one of the most significant considerations when giving
a credit.
2. Capital
Capital is the level of financial resources available of customer. It is an assessment which
done to know if the customer of the debtor have enough capital or financial resources to run
and maintain its business.
14
3. Capacity
Capacity refers to the availability and sustainability of the customer‟s cash flow at a level
high enough to pay off the loan. It is related to the customer‟s ability to manage its business
and gain profit. A decision on capital has a purpose to know whether the customer able to
pay its debt.
4. Condition
Condition refers to the sensitivity of the operating income and cash flow to the economy. The
more sensitive the cash flow to the economy, the more credit risk of the customer.
5. Collateral
Collateral is determined by the assets that can be pledged against credit. It is related to the
assessment of asset or good granted as collateral for the credit obtained from a credit sales.
Obviously, the better the quality of the collateral, the lower the risk of the credit.
The 5C is useful to analyze customer‟s ability to pay debt. Those analyses give a general
picture for a company in giving a credit to customer. Therefore, the company can minimize the
risk of uncollectible amount of receivable.
2.5 Liquidity
Pamela Drake (2007) defines liquidity as the ability of a company to meet its short-term
obligations using assets that are most readily converted into cash. While Block and Hirt (2005)
define liquidity as the firm‟s ability to pay-off short term obligations as they come due. Also
Weygandt, Kimmel, and Kieso (2011) define liquidity as the short-term ability of the company to
pay its maturing obligations and to meet unexpected needs for cash.
15
Based on the references above, liquidity is related to the short-term obligation. Therefore,
concluded that liquidity ratio reflects the ability of a company to pay its short term obligation.
The most common ratio for liquidity ratios are:
1. Current ratio
Current ratio indicates a company‟s ability to satisfy its current liabilities with its current
assets.
2. Acid-test ratio (Quick ratio)
Quick ratio indicates a company‟s ability to satisfy current liabilities with its most liquid
assets. It is a measure of a company‟s immediate short-term liquidity.
Generally, the higher the liquidity ratios are, the better the ability of the company to
satisfy its immediate obligations.
2.5.1 Accounts Receivable Management towards Liquidity
According to Riyanto (2001) in Dhahiri‟s research (2010), the faster the turnover of
accounts receivable, the more liquid that accounts receivable. It means the accounts receivable
period will be shorter. Therefore, the shorter the accounts receivable period, the more liquid the
accounts receivable is. As well as the inventory, accounts payable, and the cash.
Operating cycle of a company is influencing the liquidity of the company. The longer the
operating cycle, the more illiquid the company operating activity, because the longer the
operating cycle of a company, the longer the assets can be converted back into cash. By
16
shortening the operating cycle, the company‟s assets can be converted into cash faster and the
cash can be used for the next operating cycle.
2.6 Profitability
Pamela Drake (2007) explained that profitability shows the combine effects of liquidity,
assets management, and debt management o the result of operating activity (profit). Profitability
ratio measures the income or operating success of a company for a given period of time.
The most common used ratios to analyze company‟s profitability are as follow:
1. Gross profit margin
This ratio indicates how much of every dollar (rupiah) sales is left after cost of goods sold.
Where:
2. Net profit margin
This ratio indicates how much of each dollar (rupiah) of sales is left over after all expenses.
3. Return on Assets (ROA)
Return on Assets (ROA) is an indicator of how profitable company's assets are in generating
profit. Return on Assets gives an idea of how efficient management is at using its assets to
generate profit.
17
2.6.1 Accounts Receivable Management towards Profitability
Based on the formula of profitability ratios, the profitability of a company depends on its
net sales. One of the components of net sales is the credit sales. Therefore, it can be concluded
that if the credit sales is high, the profitability is high also. The accounts receivable is generated
from credit sales. If the credit sales is high, the accounts receivable of the company will be high
also.
When the accounts receivable tend to increase, the accounts receivable collection period
and the investment in accounts receivable will also increase. The increase of investment in
accounts receivable can lead to the increase of the cost which will decrease the profitability. Here
is the role of the management of the company to manage the accounts receivable, therefore when
the profitability is high, the accounts receivable is high as well, the company can manage the
accounts receivable therefore the profitability remain high and the company didn‟t suffer losses
because of the uncollectible accounts receivable.
2.7 Cash Conversion Cycle
In its day to day operations, a company must maintain adequate liquidity. At the same
time, the company wants to operate as efficiently and profitably as possible. Cash conversion
cycle has a tight connection to a company‟s liquidity.
According to Emery, Finnerty, and Stowe (2007), cash conversion cycle is the length of
time between the payment of accounts payable and the receipt of cash from accounts receivable.
While Pamela Drake (2007) defines cash conversion cycle as net operating cycle. Net operating
cycle is the length of time it takes to convert an investment of cash in inventory and back into
cash considering that some purchases are made on credit.
18
Cash conversion cycle or net operating cycle is same. It calculates the length of time of
cash out from a company as an investment in inventory until it gets back to company in the form
of payment from debtor as a collection for receivables, it is considered that some purchase of raw
materials are made on credit. An investment in inventory is when a manufacturing company
invests or pays some amount to buy raw material and process it into products for sale. Then the
products are then sold in the form of receivable. Then, the receivable can be converted into cash.
Therefore it called as an investment in inventory. Pamela Drake (2007) considers cash
conversion cycle as net operating cycle because company‟s operating cycle is simply a cash
cycle from inventory until receivables.
Emery, Finnerty, and Stowe (2007) stated that,
“If there were no credit, a firm‟s cash would be tied up from the moment it
purchased materials until it sold its product. If a firm granted its customers credit
but did not use credit to buy raw materials, its cash conversion cycle would be
longer”
Source: Company Financial Management: Limited Edition by Emery, Finnerty,
and Stowe. Page: 615
Figure 2.2 Cash Conversion Cycle
19
Sometimes a company needs to buy raw materials on credit. Using credit to buy raw
materials would shorten the firm‟s conversion cycle because the money would not be invested
for too long. The figure represent that the cash conversion cycle will be longer if the company
buy its raw materials on credit, even the customer will not be on time on payment. The example
is if the company sold its product 60 days after it purchased raw materials with cash and it took
30 days to collect the accounts receivable, it would take 90 days (60 days + 30 days) for the cash
invested in raw materials to be converted back into cash. But if the company bought the raw
materials on credit, example if the credit term is n 20, the company can pay to the vendor at the
day 20th
, therefore the cash conversion cycle will be longer, it will be 70 days (90 days – 20
days).
The cash conversion cycle equals the inventory conversion period, plus the receivables
collection period, minus the payables deferral period:
Where:
DSO = Days Sales Outstanding/Average Collection Period
DSI = Days Sales in Inventory/Number of Days in Inventory
DPO = Days Payables Outstanding
The DSI, DSO, and DPO can be calculated by:
20
Therefore, the cash conversion cycle is related to the company‟s liquidity, because the
cash conversion cycle measures the ability for company to operate in the short-term period.
2.8 Comparative Analysis
Every account in a financial statement has an important meaning to the company. The
same thing applies to the result of financial ratios‟ calculation. The result of financial ratios‟
calculation will not give significant meaning if it is stand alone, therefore it should be compared
with other result of financial ratios‟ calculation.
According to Weygandt, Kimmel, and Kieso (2011), the comparison of financial ratios‟
result can be made on a number of different bases:
1. Intracompany basis
This basis compares a result of financial ratio within a company in one or more prior years.
Intracompany comparison is useful in detecting changes in financial relationships and
significant trends.
2. Industry averages
This basis compares a result of financial ratio of a company with industry averages (or
norms) published by financial ratings organizations, such as the U.S companies Dun &
Bradstreet, Moody’s, and Standard & Poor’s. Comparisons with industry averages provide
information as to a company‟s relative performance within the industry.
3. Intercompany basis
21
This basis compares a result of financial ratio of one company with the same item or
relationship in one or more competing companies in the same industry. Intercompany
comparisons are useful in determining a company‟s competitive position.
2.9 Previous Research
Dhahiri (2010) ever conducted a research with title “Analisis Pengaruh Manajemen
Piutang terhadap Stabilitas Arus Kas dan Likuiditas Perusahaan (Studi Kasus Di PT. X)”. The
research has a purpose analyze the accounts receivable towards the cash flow stability and
liquidity in PT. X partially and simultaneously.
From the data analysis, it can be concluded that partially, there are no significant
correlation between Accounts Receivable Turnover Ratio (ARTO) with cash and between
Average Collection Period (ACP) with cash, but there is a significant correlation between
Receivable Investment (RI) with cash. Also there are no significant correlation between ARTO
with liquidity and ACP with liquidity, but there is a significant correlation between RI with
liquidity. Simultaneously, there is no significant correlation between accounts receivable
management with cash but there is a significant correlation between accounts receivable
management with liquidity in PT. X.
Indrajat (2011) ever conducted a similar research with title “Analisis Pengaruh
Pengendalian Piutang terhadap Efektivitas Arus Kas (Studi Kasus pada PT.Z)”. This research
have objective to analyze the effectiveness of receivable management towards the cash flow of
PT. Z.
22
The result of this research is PT. Z has done the management and the control process
based on the SOP (Standard Operation Procedure) which has been established by the company,
but in the practice there are still several things which are not accordance with the SOP.
The receivable control which done by PT. Z is not effective to the company‟s cash
inflow. This is proved by the negative result of cash conversion cycle analysis. The negative
result of cash conversion cycle has meaning that the company didn‟t have enough receivables to
be converted into cash because of the inhibiting factors, such as the billing of receivables, and
the credit analysis (5C) is not implemented well to the customer.
2.10 Theoretical Framework
PT. XYZ basically is one of the big global manufacturing companies in Indonesia. PT.
XYZ already runs the business in Indonesia for decades. Although PT. XYZ is already run the
business in Indonesia for decades, PT. XYZ‟s sales is still far below the competitors.
One of the strategies to increase the sales is by selling the products on credit sales. When
a company makes sales on credit, then there will be accounts receivable for the company. A
company‟s accounts receivable condition is used as a basis to determine or assess the company‟s
accounts receivable management. In this research, the accounts receivable management of PT.
XYZ will be evaluated by using performance assessment analysis.
The analysis of company‟s performance assessment in this research is based on the data
gathered from PT. XYZ‟s financial statement, and determined with the output assessment
analysis. The output assessment analysis is performed by evaluating the effect from the accounts
receivable management run by the company towards the liquidity, cash conversion cycle, and
profitability of the company. The measurement of accounts receivable management‟s output is
performed by calculating the financial ratios. The ratios used in this research are Accounts
23
Receivable Turnover Ratio and Average Collection Period. The liquidity here is calculated using
the liquidity ratios which are current ratio, quick ratio, and cash ratio. The profitability here is
calculated using the profitability ratios which are gross profit margin, net profit margin, and
return on assets (ROA).
The accounts receivable measurement in this research is used to determine the accounts
receivable management‟s correlation towards the liquidity, cash conversion cycle, and the
profitability of the company. To assess the correlation between the accounts receivable
management and the liquidity, cash conversion cycle, and the profitability of the company,
researcher uses the correlation test using SPSS software. The result from the analysis is used as a
basis to evaluate the company‟s accounts receivable management and to recommend the
effective accounts receivable management for PT. XYZ related to the liquidity and profitability
of the company.
24
Figure 2.3 Theoretical Framework
Analysis of Accounts Receivable
performance:
Accounts Receivable Turnover Ratio
Average Collection Period
Profitability Analysis:
Gross Profit Margin
Net Profit Margin
Return on Assets
(ROA)
Cash Conversion Cycle Analysis:
Days Sales Outstanding
Days Sales of Inventory
Days Payable Outstanding
Correlation Analysis
Liquidity Analysis:
Current Ratio
Quick Ratio
Cash Ratio
Accounts Receivables
Accounts Receivable Management
Factors affecting accounts receivable
External Internal
Notes to Financial Statement Statement of
Financial Position
Statement of
Comprehensive Income
Recommendation for Company
PT. XYZ
Credit Sales
25
CHAPTER III
DATA PROCESSING METHOD
AND COMPANY PROFILE
3.1 Data Collecting and Processing
The type of data used in this research is primary data. Primary data is defined as new data
collected specifically for research purpose. In conducting this research, there are several
instruments that can be used to collect data related to accounts receivable management and
financial condition of PT. XYZ, such interviews (inquiry of the client), documentation,
observation, and analytical procedure
3.1.1 Inquiry of The Client (Interviews)
Inquiry is obtaining of written or oral information from research object (PT. XYZ). The
researcher uses interviews to get information from the management/staffs of the company
regarding accounts receivable management and company‟s financial condition. Interviews
conducted in two divisions of Accounting and Finance Department: Sales and Marketing Finance
area, and General Accounting area. The purpose of the interview is to get information related to
accounts receivable management and the company‟s financial condition.
Although considerable information is obtained from the management of the company
through inquiry, it usually cannot be regarded as conclusive because it is not from an
independent source and may be biased in the management‟s favor. Therefore, when the
26
researcher obtain information through inquiry, it is normally necessary to obtain corroborating
information through other procedures.
The interview conducted on December 7, 2013 and December 10, 2013. On December 7,
2013 the interviewee is Sales and Marketing Finance Manager (Mrs. XX). On December 10,
2013 the interviewee is General Accounting staff (Mr. XY). Through interviews, researcher
gathers/collects some information as follow:
1. Interview with Sales and Marketing Finance manager
Objectives: Accounts receivable management process, sales and accounts receivable
procedures
Place : Mrs. XX‟s house
Time : December 7, 2013 from 03.00 PM – 04.00 PM
Results and conclusions for interview:
a. Not all the sales are on credit, the proportion of the sales is 70% cash sales, 30% credit
sales
b. PT. XYZ sells its products to dealers, not to end customers
c. PT. XYZ did a credit analysis before giving a credit to dealer. The credit analysis is one
of the accounts receivable management applied in PT. XYZ
d. PT. XYZ sells two kinds of products, car and spare parts. The car is sold on cash sales,
means the dealer has to pay the order before the dealer can receive the cars. While the
spare parts are sold in credit sales.
e. PT. XYZ sells its car products based on order from dealer while PT. XYZ’s sales
department has a target for spare part sales
27
f. PT. XYZ has just implemented new sales procedure. Before 2011, the sales are all on
credit. But because PT. XYZ got new CFO in year 2011, the sales procedure is change
g. Before year 2011, PT. XYZ did not have any allowance for doubtful accounts because the
management believes that PT. XYZ can collect the accounts receivable
h. Dealers have to has a bank guarantee as credit collateral given to PT. XYZ
i. PT. XYZ has a standard in collecting the accounts receivable
j. All the credit sales activities performed by system
k. The documents needed by Finance to process the accounts receivable are Purchase
Order from dealer and Sales Order from After Sales division
l. Employee job description and specific duties are clearly established and communicated
m. Adequate separation of duties among billing, recording accounts receivable and cash
receipt
n. The sales invoice is automatically printed after the sales order is released from the
system by Sales and Marketing Finance manager
o. The sales invoice and the tax invoice (Faktur Pajak) is sent together to the customer by
p. There is no difficulties in managing the accounts receivable for Sales and Marketing
Finance manager because most of the dealers are cooperative
q. Lack of billing effort. If there is any accounts receivable which already due, PT. XYZ only
gives warning three months after the dealer’s due date. There is no further hard effort
except blocking the dealer.
28
The results of interview above are the general information about the accounts receivable
management of PT. XYZ, while the full process of accounts receivable management will be
elaborated in Chapter IV.
2. Interview with General Accounting staff
Objective: PT. XYZ‟s financial condition
Place : By phone
Time : December 10, 2013 from 03.30 PM – 04.00 PM
Results of interview:
PT. XYZ is growing nowadays. Starting from year 2012, PT. XYZ self-manufactured
its product. The credit sales which was 100% is reduced to 30% start from year 2011.
Accounts receivable is not really gives a big influence to the balance sheet, because the
amount of accounts receivable each year is below 5% in average. But, the amount of
accounts receivable each month is cannot be called small. Each year, accounts receivable
amount can reach 2 billion rupiah. But with the cooperation with the dealers, accounts
receivable can be converted into cash quickly.
With the high amount of accounts receivable each month, sometimes PT. XYZ needs
to borrow cash from the PT. XYZ global. The liquidity and profitability of PT. XYZ can be
called as not high but not low also, it is because PT. XYZ is still growing. In year 2006, PT.
XYZ has faced a financial distress, PT. XYZ was almost bankrupt at that time. The cause of
bankruptcy is the declining demand of PT. XYZ’s products. Indonesian people are still
attracted to Toyota. But today, the demand for PT. XYZ’s car is begin to rise slightly. Today,
the financial condition of PT. XYZ is developed. The liquidity and profitability of PT. XYZ is
strengthening.
29
To assess the financial performance, PT. XYZ does an internal and external
assessment. The internal assessment is performed by the analyst of PT. XYZ. The analyst
analyzes the past financial condition therefore PT. XYZ can be improved, the analyst also
forecasts the future financial condition therefore PT. XYZ can be prepared for anything
happen in the future. Besides assessing the financial performance internally, PT. XYZ also
asks for external consultant, especially for tax, to help PT. XYZ undergoes the business
activities.
3.1.2 Documentation
Documentation is the process if tracking down evidences either internal or external
evidences of transactions or activities being researched. In checking/examining the documents
the researcher have determined/checked what documents being researched, what are the function
of those documents, who made those documents, who are the person that authorized to sign, and
where those documents distributed.
By investigate the documents such as the Purchase Order, Delivery Order, Sales Invoice,
and the Faktur Pajak. Also, the researcher investigates the company‟s financial statement from
year 2008-2012 to calculate the financial ratios. The researcher collects/gathers some data as
follows:
a. Purchase order, sales invoice, delivery order are pre-numbered automatically by system. The
objective is to minimize the failure to bill or record sales and the occurrence of duplicate
billings and recordings
b. The purchase order from dealer is received by After Sales division by email
c. The sales order is created in system by After Sales division, sales order is created for each
dealer’s order
30
d. The sales invoice, tax invoice (Faktur Pajak), sales journal, and delivery order are
automatically printed by system
e. The invoice and tax invoice are sent to dealer by mail
f. The delivery order is given to Logistic Department to prepare the unit ordered to be
delivered to dealer
3.1.3 Observation
Observation is the process of gathering data by seeing, smelling, hearing, tasting, and
feeling to assess certain activities. Though observation, researcher can obtain information such as
how PT. XYZ manages its accounts receivable, organization or working environment, and the
existing financial condition of PT. XYZ.
I, as the researcher, do the observation when I do my internship period in PT.XYZ. The
observation is quite limited due to the safety purpose. I cannot do plant tour because it is
prohibited for people who do not have any specific purpose to enter the plant.
Below are the results of observation:
a. Sales and Marketing Finance as the division which manage all the accounts receivable is
always busy
b. Once the Sales and Marketing Finance staff sent the sales invoice, the invoice is not only one
invoice, there are more than 5 invoices to be sent, and the invoices are sent once a week
c. There are approximately 10 people in the Sales and Marketing Finance division including
the manager and administration, each of them has their own job description
d. Shipping activity held on Tuesday and Friday every week
e. The sales invoice and tax invoice are signed by Sales and Marketing Finance manager
31
f. All documents such as copy of sales invoice, copy of tax invoice, sales journal, and copy of
delivery order are properly keep and maintain by Sales and Marketing Finance division
g. Every once a month, held a dealer meeting which attended by the representatives from
dealers and representatives from Sales Department and sometimes representative from Sales
and Marketing Finance also attends the meeting
3.1.4 Analytical Procedure
Analytical procedures use the comparisons and relationships to assess whether account
balances or other data appear reasonable compared to the researcher‟s expectations. The purpose
of analytical procedures as follows:
1 To understand the company‟s industry
2 To assess entity‟s ability as a going concern
3 To assess the company‟s financial performance
Analytical procedures also encompass the investigation of identified fluctuations and
relationship that are inconsistent with other relevant information or deviate significantly from
predicted amounts.
The result of analytical procedure is not valid evidence therefore need to be validated
through other types of evidence such as documentation and observation. In this research,
researcher used liquidity ratio, cash conversion cycle, and profitability ratio to measure the
company‟s liquidity and profitability.
Researcher uses Accounts Receivable Turnover Ratio and Average Collection Period to
measure the accounts receivable performance of PT. XYZ.
32
a. Accounts Receivable Turnover Ratio (ARTO)
This ratio analysis shows how many times the company collect its receivables during one
year. The formula is:
b. Average Collection Period (ACP)
Average collection period gives estimation about how many days the accounts receivable can
be collected. The formula is:
Researcher uses current ratio, quick ratio, and cash ratio to measure liquidity of PT. XYZ,
cash conversion cycle analysis to measure the company‟s cash conversion cycle, and gross profit
margin, net profit margin, and Return on Assets (ROA) to measure the profitability of PT. XYZ.
For the formulas, please refer to Chapter II.
Researcher also performed correlation analysis using SPSS Version 16 for Windows as
additional evidence to measure the correlation between accounts receivable management towards
the liquidity, cash conversion analysis, and profitability of PT. XYZ.
For the result of calculation, please refer to appendix.
3.2 Company Profile
PT. XYZ Global was founded by William C. Durant on September 16, 1908. It is a
United States-based automaker which develops, manufactures and markets cars, trucks and parts
worldwide with its headquarters in Detroit, Michigan. The company manufactures cars and
33
trucks in 31 countries, recently employed 202,000 people around the world, and services vehicles
in some 157 countries. PT. XYZ Global produces cars and trucks in 31 countries.
In 2010, PT. XYZ ranked second on the list with 8.5 million units produced globally. In
2011, PT. XYZ returned to the first place with 9.025 million units sold worldwide,
corresponding to 11.9% market share of the global motor vehicle industry. The top two markets
in 2011 were the United States, with 2,503,820 vehicle sold, and China, with 2,547,203 units
PT. XYZ was the first car manufacturer to open a branch in Indonesia, began from almost
100 years ago when PT. XYZ Global introduced the 6-cylinder car in 1929. The high demand for
its brand in Netherlands East Indies (Indonesia) encouraged PT. XYZ to make its first plant in
Tanjung Priuk in 1938 as well as the first car factory in Indonesia.
In 2006, PT. XYZ shut down its plant due to the decreasing of its sales, but in August
2013, PT. XYZ reopens its plant in Bekasi, West Java, Indonesia, it is located in KM. 27 Pondok
Ungu, Bekasi, and it would produce 40,000 passenger cars per year for the Southeast Asean
market. It is the third plant in Southeast Asia, after the Rayong plant, Thailand and the Hanoi
plant, Vietnam.
PT. XYZ has three subsidiaries. It is PT. XYZ. PT. XYZ Manufacturing, and PT. XYZ
AW. PT. XYZ is authorized to sell its products to dealers and export its product, PT. XYZ
Manufacturing is only authorized to make the product and sell it to PT. XYZ, and PT. XYZ AW
nowadays is no longer in use, but PT. XYZ AW still have assets, therefore PT. XYZ still keep
PT. XYZ AW in the business.
34
3.2.1 Vision and Mission of PT. XYZ
The vision of PT. XYZ Global is to design, build, and sell world‟s best vehicles. The
goals of the company are to lead in advanced technologies and quality in creating the world's
best vehicles; give employees more responsibility and authority and then hold them accountable;
and create positive, lasting relations with customers, dealers, communities, union partners and
suppliers to drive our operating success.
PT. XYZ has mission to establish a strong market position in Indonesia by delivering
vehicles and services that exceed customers' expectations through attracting and developing the
best employees, dealers, suppliers and other business partners. PT. XYZ now is arises from its
financial distress in 2006 which causing PT. XYZ to close its plant.
3.2.2 Products of PT. XYZ
PT. XYZ sells cars and its spare parts. Some of the cars are produced in Indonesia, and
some others are import. The cars are imported from Thailand and China, because Thailand and
China are operating for Asia. All of the cars are American cars which has a slight different from
Japanese cars. Start from year 2012, PT. XYZ self-manufacturing its products. The product has a
tagline “Untuk Indonesia, Dari Indonesia”. The new product is designed to fulfill Indonesian
people needs.
To maintain the company‟s products quality standard stay at highest grade, PT. XYZ
brings in great engineer from foreign countries such as from America, Netherland, and Korea.
The quality of PT. XYZ is highly maintained. PT. XYZ chooses the best raw materials to make
its products.
35
To support the sales, PT. XYZ also provides services for the customers who have
problem with their cars. The services are 3 year warranty unlimited KM and Customer
Assistance Center 24H (CAC). Therefore PT. XYZ never fails their customers.
3.2.3 Market of PT. XYZ
Over these years, PT. XYZ only sells the products in Indonesia. PT. XYZ has never
export the products. But, PT. XYZ markets are around Indonesia. PT. XYZ ships its products not
only to Java island, but also to Sumatera, Kalimantan, Sulawesi, even Papua.
Nowadays, PT. XYZ is trying to expand the market to foreign countries such as Thailand.
But the plan to export the products is still in the process consider to the readiness of PT. XYZ in
manufacturing the products in mass volume.
36
CHAPTER IV
DATA ANALYSIS AND EVALUATION
4.1 Credit Sales and Accounts Receivable Flow of PT. XYZ
PT. XYZ is one of the biggest automotive manufacturing companies in Indonesia. PT.
XYZ sells two kinds of products; car and spare part. PT. XYZ sells the car using cash basis;
customers will only get the customers‟ orders after the customers fully pay the orders. But for the
spare part, PT. XYZ sells it on credit sales. The sales for both spare part and car are done by
system to avoid the human error.
Technically, PT. XYZ has procedures in doing the credit sales. These procedures are
involving several divisions in the management functions. The divisions that are mostly involved
are After Sales division under Sales Department and Sales and Marketing Finance division under
Accounting and Finance Department. PT. XYZ only sells its products to dealers not to end
customers. PT. XYZ produces its products based on the order from dealers.
In the Standard Operation Procedure (SOP) of PT. XYZ, for spare part sales all dealers
have spare part sales target to be achieved. The target is determined by PT. XYZ. To get credit
from PT. XYZ, dealer has to agree with the spare part sales target that determined by PT. XYZ,
and dealer has to have credit collateral in the form of Bank Guarantee to be given to PT. XYZ.
Bank Guarantee is written agreement which Bank as a third party is willing to act as a guarantor
for the customers who become debtor in an agreement. In Bank Guarantee, there is an amount
stated which can be redeemed by the creditor if the debtor is failed to pay the debt to the creditor.
Sales and Marketing Finance Manager of PT. XYZ explained that:
37
“All dealers have to have a Bank Guarantee in order to get credit from us
(PT.XYZ). It is as a guarantee from the dealers that they will pay their debt to us.
The amount of Bank Guarantee depends on the agreement between the dealer and
bank, we do not require the amount of Bank Guarantee to the dealer. We also do
not require which Bank the dealer has to make agreement with. As long as the
Bank is a big and trusted Bank in Indonesia, we approve the Bank Guarantee from
that Bank”
The credit sales procedure starts after the spare part sales target confirmation for one year
is sent by dealer to After Sales division of PT. XYZ. Then, the After Sales division will review
and approve the sales target confirmation. After the After Sales division approves the sales target
confirmation from dealer, the dealer has to issue the Bank Guarantee. The amount stated in Bank
Guarantee represents how many amount of spare part (in money term) the dealer can order each
month. As explained by Sales and Marketing Finance above, the amount in Bank Guarantee is
not determined by the Bank or PT. XYZ, it depends on the dealers‟ ability. But all dealers have
to remember that they have a spare part sales target to be achieved in one year.
The Bank Guarantee issued by dealer is sent to Sales and Marketing Finance division.
After Sales and Marketing Finance receives the Bank Guarantee, Sales and Marketing Finance
Manager will set up a limit amount in the system based on the amount in Bank Guarantee. The
system will automatically block the dealer if the amount of order is exceeding the limit.
Therefore, the dealer‟s order every month will not exceed the amount in Bank Guarantee.
To order spare parts from PT. XYZ, dealers have to issue a Purchase Order (PO). The
Purchase Order issued by dealer is sent to After Sales division. After the After Sales division
receives the PO, After Sales division creates Sales Order (SO) in the system and confirm to Sales
and Marketing Finance division that the SO has been created. One order created with one SO,
therefore it is possible that it will be only one SO created for 100 spare parts ordered by dealer.
Then the Sales and Marketing Finance division released the SO in the system.
38
The credit sales are done by system. After Sales and Marketing Finance division release
the SO of the dealer, the sales system will automatically process the order and generates Delivery
Order and Packing List, while the finance system generates Invoice, Faktur Pajak (Tax Invoice),
and Sales Journal. Packing List is the list of dealer‟s order. Next step, After Sales sends the
Packing List and Delivery Order to Logistic Department then Logistic Department prepares the
spare parts ordered by dealer and sent it to dealer. While the Invoice and the Faktur Pajak are
sent to dealer for the billing process.
For the billing process, sales and marketing finance manager explained that she and her
team didn‟t face many difficulties in collecting the receivables. Because of the dealers are mostly
cooperative with them, it maybe only one or two dealers that are difficult to cooperate with.
PT. XYZ has just applied new procedure for the sales, and the new procedure is affected
to the accounts receivable. Starting from year 2011, all car sales are done by cash. All dealers
have to fully pay the units ordered first, and then PT. XYZ can release the products. Before, the
sales for both car and spare part are on credit. The implementation of new procedure is because
in year 2011 PT. XYZ got new CFO, and different people, different rules. PT. XYZ is a global
automotive manufacturing company, therefore there are so many branches spread around 5
continents in the world under its head office. The biggest branch for Asia is in Thailand. PT.
XYZ‟s new CFO is a Thailand oriented, therefore he implemented all the rules applied in
Thailand to PT. XYZ. One of the most influential rules is selling the car on the cash sales.
Sales and Marketing Finance manager said that the accounts receivable from year 2010 to
2011 is drastically decrease. The credit sales which was 100% become only 30%. But even
though the credit sales is only 30% from its total sales, the amount of the credit sales each month
is huge, it can reaches around 2 billion. But with the cooperation from dealers, she said that it
39
didn‟t need take a long time for dealers to adapt with the new rules of PT. XYZ. Also with the
cooperation from the dealers, she and her team didn‟t get many difficulties in managing the
accounts receivable.
For the flowchart of credit sales and accounts receivable, please refer to appendix.
4.2 Accounts Receivable Management of PT. XYZ
Accounts receivable is generated from credit sales, and credit sales gives high risk to a
company. PT. XYZ is very carefully in giving the credit to the dealers, therefore PT. XYZ is
selective in accepting dealers. Credit analysis is one of the parameter in applying a credit policy
in PT. XYZ. The first step of accounts receivable management in PT. XYZ is check whether the
dealer is competent to receive credit or not. Generally, credit analysis applied by PT. XYZ is
same as the theory in the Chapter II, which are Character, Capital, Capacity, Condition, and
Collateral. But, PT. XYZ concerned on the Capacity, because the Capacity related to the dealers‟
ability in managing the business to obtain the optimum profit, which affected to the dealers‟
ability in paying the debt to PT. XYZ. PT. XYZ has requirements that have to be fulfilled by a
company which has intention to be PT. XYZ‟s dealer. The requirements are as follows:
Dealer is a business entity that are legal and authorized by the law in Indonesia
Dealer has to have a location with a building that are private property of that company,
not a leased property
The building stands in a strategic location
Dealer has a reliable ability to pay all the selling transactions with PT. XYZ
Dealer has to issue a Bank Guarantee in order to get credit from PT. XYZ
40
The account receivable is recognizes after the invoice issued. Account receivable in PT.
XYZ is need to be managed carefully, even though the accounts receivable is only 30% from its
total sales each year, the amount is huge, PT. XYZ sometimes needs additional financial
resources to keep operating because the cash inflow from the credit sales can‟t be used until the
receivables are collected.
PT. XYZ has a policy that the accounts receivable must be collected within 30 to 40 days,
with the following term of payment:
Table 4.1 PT. XYZ's term of payment
Date of Order Date of Payment
1 – 15 10th
of the following month
16 – end of month 20th
of the following month
Source: PT. XYZ’s credit policy
But in the practice, there still many dealers that do not comply with the rules applied by PT.
XYZ. Obviously this affects the cash inflow of PT. XYZ.
By selling the products on credit, there would be a risk of uncollectible receivables.
Starting from year 2011, PT. XYZ prepares an allowance for doubtful accounts. Before year
2011, PT. XYZ didn‟t prepare any allowance for doubtful accounts, because PT. XYZ believes
the company can collect all the receivables. Decision to make an allowance for doubtful accounts
in year 2011 is due to the management‟s plan to start car and spare part self-manufacturing in
year 2012. The following is the allowance for doubtful accounts refers to PT. XYZ‟s policy:
41
Table 4.2 PT. XYZ's policy of allowance for doubtful accounts
Days Due Percentage of allowance
1 – 30 days old 0%
31 – 60 days old 10%
61 – 90 days old 20%
91 – 120 days old 40%
121 – 150 days old 60%
151 – 180 days old 80%
>181 days old 100%
* “days old” refers to the original invoice due date
Source: PT. XYZ’s credit policy
Sales and Marketing Finance manager told that she only ever write off the accounts receivable
once as long as she served as a manager in the end of year 2012 with the amount of Rp
339,298,000,-. The following is the amount of allowance for doubtful accounts as of December
2012:
Table 4.3 PT. XYZ's allowance for doubtful accounts as of December 2012
Amount of Accounts
Receivable Days Due
Percentage
of allowance
Amount of
Allowance of
Doubtful
Accounts
IDR 850,702 1 – 30 days old 0% -
IDR 1,154,635 31 – 60 days old 10% IDR 115,463
IDR 1,826,563 61 – 90 days old 20% IDR 365,313
IDR 983,675 91 – 120 days old 40% IDR 393,470
IDR 587,644 121 – 150 days old 60% IDR 352,586
IDR 373,674 151 – 180 days old 80% IDR 298,939
IDR 339,298 >181 days old 100% IDR 339,298
IDR 6,116,191 Total Amount IDR 1,865,069
Source: Processed journal voucher of allowance for doubtful accounts December 2012
Based on the table above, PT. XYZ still has many accounts receivable due. Means PT.
XYZ needs to be more active in collecting the accounts receivable, therefore PT. XYZ will not
suffer lose anymore.
42
The strength from the accounts receivable management in PT. XYZ is the system.
Because all of the credit sales are processed by system, the human error is reduced up to 95%.
Although it is still 5% chance for human error, but the error generally is not a fatal error. Also
the system can automatically block the dealer which still has an overdue in the payment. Sales
and Marketing Finance manager already set up the limit amount for every dealer based on the
amount in Bank Guarantee issued by that dealer. Therefore when the dealers‟ order is exceeding
the limit, the system will automatically block that dealer, and to unblock that dealer, that dealer
has to pay the overdue amount, and then the system can automatically unblock that dealer.
PT. XYZ doesn‟t have a specific policy according to the collection of accounts
receivable. Sales and Marketing Finance manager will only pursue the dealer if the dealer has an
overdue amount which not paid for three months. Sales and Marketing Finance manager said that
PT. XYZ will not suffer a big loss because PT. XYZ has a Bank Guarantee as credit collateral
that the company can redeemed anytime if the dealer is not responsible in paying the debts and
the manager thinks that the dealer will also suffer loss because by blocking a “naughty” dealer,
that dealer cannot order any spare parts from PT. XYZ unless that dealer pay the overdue
amounts, and sooner or later that dealer will pay the overdue amounts.
4.3 Factors Affecting Receivables in PT. XYZ
Factors affecting the amount of receivables in PT. XYZ can be seen from two factors,
internal and external. The following are the factors affecting amount of receivables in PT. XYZ:
a. Internal factors, are factors that come from inside of the company and can be controlled by
the company. In PT. XYZ, the internal factors that can be found are credit sales, billing
effort, sales procedure, and the doubtful accounts.
43
Credit sales
The credit sales is internal factor that affected the accounts receivable the most, because
credit sales will generate accounts receivable. Credit sales of PT. XYZ is increasing from
year to year, but from year 2010 to 2011 the sales which was 100% in credit turns into
only 30% in credit, the credit sales is decline drastically. With the decrease of the credit
sales, the accounts receivable is decrease too.
Figure 4.1 PT. XYZ’s credit sales and accounts receivable amount from year 2008-2012
Source: PT. XYZ’s financial statement
Based on the graph above, both accounts receivable and credit sales are reached the
strongest point in 2010, but drastically decline in year 2011. The credit sales transactions
in PT. XYZ are all done in Rupiah.
Billing effort
The longer the life of accounts receivable, the possibility of that accounts receivable to be
uncollected is higher. It is required a great billing effort to collect the accounts receivable.
The greater the effort to collect the accounts receivable, the greater the amount of
accounts receivable that will be collected. PT. XYZ will only pursue the dealer when the
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
800,000,000
900,000,000
2008 2009 2010 2011 2012
Accounts Receivable
Credit Sales
44
dealer doesn‟t pay the overdue amounts for three months. Before three months, PT. XYZ
is not making any effort in collecting the bad debt.
Sales procedure
It is found that in PT. XYZ, the sales procedure is affecting the amount of accounts
receivable. PT. XYZ has just implemented a new sales procedure in year 2012. The new
procedure stated that all car sales are performed in cash sales, only the spare parts are
sold in credit. This new procedure affects both the sales and accounts receivable. From
year 2010 to 2011, credit sales are declining about 70%, the 70% declining of credit sales
of PT. XYZ impact on the accounts receivable. The following is the details of the decline
both credit sales and accounts receivable from year 2010 to 2011:
Table 4.4 Accounts receivable and credit sales balance year 2010 to 2011
Accounts 2010 2011 Decrease
Accounts Receivable Rp 18,307,891 Rp 10,686,675 42%
Credit Sales Rp 837,807,068 Rp 50,884,719 94%
Source: Processed PT. XYZ’s financial statement
Doubtful accounts
Doubtful accounts in PT. XYZ is accounts receivable that is not yet paid even though the
due date has been passed. The higher the doubtful accounts, the lower the amount of
accounts receivable. It is because doubtful account is a loss that incurred from the
uncollectible accounts and it reduced the amount of the accounts receivable.
b. External Factors, are factors that affecting the company‟s condition which come from outside
of the company and can‟t be controlled by the company. In PT. XYZ there is only one
external factor that can be found, the external factor is dealers‟ financial condition.
45
Dealers‟ financial condition
Sometimes if the dealer is in a financial downturn, the dealer will hard to pay the debt to
PT. XYZ, the debt will become doubtful accounts, and it will reduce the accounts
receivable amount of PT. XYZ. Therefore, PT. XYZ is very concerned in approving a
company to be a dealer of PT. XYZ‟s car and spare parts.
4.4 Accounts Receivable Performance Assessment of PT. XYZ
Analysis of receivable performance assessment is used to assess the performance level of
PT. XYZ‟s receivable management. From the result of the receivable performance assessment,
there will be obtained the overview of receivable management condition and its development
during the analysis period which is from year 2008 until 2012. In this case, the researcher uses
account receivable turnover ratio and average collection period to perform the receivable
performance assessment.
4.4.1 Accounts Receivable Turnover Ratio
This ratio analysis shows how many times the company collect its accounts receivables
during one year. PT. XYZ doesn‟t apply an exact standard for the accounts receivable turnover
ratio. The ratio for accounts receivable turnover and the average collection period can be seen in
the following table:
Table 4.5 PT. XYZ's Accounts Receivable Turnover Ratio
Component 2008 2009 2010 2011 2012 Average
Accounts Receivable Turnover 32.6 32.83 50.52 3.51 13.66 26.62
Source: Processed PT. XYZ’s financial statement
46
Generally, receivable management in PT. XYZ is good, it can be seen from its accounts
receivable turnover. The accounts receivable turnover in year 2008 is 32.6, means that PT. XYZ
can collects its accounts receivable 32 to 33 days in a year, and it increases to 32.83 in 2009. In
year 2010, there is an increase in the accounts receivable, as well as the sales. The accounts
receivable was increase about 23% while the sales increase about 50%. Therefore, the accounts
receivable turnover is rapidly increase to 50.52. But in 2011, the turnover ratio is decrease
sharply to 3.51. It is because from year 2011, PT. XYZ starts to apply new procedure for the
company‟s sales, this new procedure is affecting credit sales the most. The sales which was
100% in credit, starting in 2011 turned into 30% in credit and 70% in cash. The credit sales
significantly decreased for 94% from year 2010. The decreasing of sales also has an impact to
the accounts receivable. The account receivable decreased about 42% from year 2010. In 2012,
the dealers slowly begin to adapt with the new rules applied by PT. XYZ. This marked by the
increase of sales for 100% and the decrease of accounts receivable for 60% from year 2011. The
dealers‟ adaption to the new procedure made the account receivable turnover increase to 13.66.
The average accounts receivable turnover of PT. XYZ for five year is 26.62. This means
PT. XYZ can collect its accounts receivable for 26 times a year. It is counted that PT. XYZ has a
good accounts receivable management. Because if 26.62 is divided by 12 (12 months a year) the
result is 2.22, it means that PT. XYZ can collects its accounts receivable twice in a month, while
the standard collection period of accounts receivable in PT. XYZ is 30 days. It can be concluded
that the accounts receivable turnover ratio in PT. XYZ is already above the standard, which is
good for the company, although PT. XYZ still need to fix its accounts receivable management
after the appliance of the new procedure.
47
4.4.2 Average Collection Period
Average collection period is one of the analysis tools to see the company effectiveness in
collecting the receivables resulted from the credit sales made by the company. Average
collection period gives estimation about how many days the accounts receivable can be
collected. PT. XYZ has a standard in collecting the accounts receivable. The standard collection
period of PT. XYZ is 30 days. Dealers have to pay its debt within one month or 30 days after the
invoice is issued.
Table 4.6 PT. XYZ's Average Collection Period
Component 2008 2009 2010 2011 2012 Average
Average Collection Period 11.2 11.12 7.23 103.99 26.73 32.05
Source: Processed PT. XYZ’s financial statement
Same as accounts receivable turnover ratio, PT. XYZ‟s collection period is good enough.
The average collection period for 5 years is 32.05, this means PT. XYZ can collect its accounts
receivable within 32 days, while the standards is 30 days. The weakest point is in year 2011
when PT. XYZ starts to apply new sales procedure for dealers. This make the average collection
which was good had to be bad. But PT. XYZ can fix it and perform much better in 2012.
4.5 Liquidity Analysis
Liquidity analysis is used to assess the company‟s ability in fulfilling its current liability.
Liquidity analysis also shows how the company‟s financial condition in a short term period. The
value of liquidity ratio is influenced by the components of current assets and current liabilities.
The liquidity level measurement of PT. XYZ is using current ratio, quick ratio, and cash ratio.
The ratio analysis result of PT. XYZ can be seen in the following table:
48
Table 4.7 PT. XYZ's Liquidity Ratio
Components 2008 2009 2010 2011 2012 Average
Current Ratio 0.54 0.51 2.43 1.67 0.98 1.23
Quick Ratio 0.12 0.25 1.53 0.75 0.28 0.59
Cash Ratio 0.07 0.19 1.33 0.65 0.08 0.46
Source: Processed PT. XYZ’s financial statement
4.5.1 Current Ratio
Current ratio is used to assess the company‟s ability to pay its short term obligations with
its current assets. From the analysis result, the average of PT. XYZ‟s current ratio for 5 years is
1.23, which means each of Rp 100,- of its short term obligation is covered by Rp 123,- of its
current assets. According to Weygandt, Kimmel, and Kieso (2011), standard for current ratio is
2, it means that PT. XYZ‟s ability to pay its short term obligation is still below the standard.
Figure 4.2 PT. XYZ's Current Ratio
Source: Processed PT. XYZ’s financial statement
The current ratio of PT. XYZ is the strongest in year 2010, and the lowest in year 2009.
After the downturn in year 2006, PT. XYZ seems still have liquidity problem in year 2008 and
2009. Year 2010 is the best year of PT. XYZ among those 5 years. The sales of PT. XYZ is high,
while the liabilities are lower than year 2009. The high sales affected to the cash, receivables,
and the inventory. Therefore, in year 2010 PT. XYZ has many assets and it doesn‟t have much
liability to be paid, those makes the current ratio slightly increases to 2.43. The changing rules of
0
1
2
3
2008 2009 2010 2011 2012
Current Ratio
49
sales have an impact to the current ratio also. In 2011, the decreasing of PT. XYZ‟s accounts
receivable as a component of current assets is followed by the increasing of PT. XYZ‟s current
liabilities. Therefore the current ratio is going down. In 2012, PT. XYZ is started to produce its
own products, a significant increase in current liabilities is not followed by its current assets, the
current ratio become 0.98. It makes PT. XYZ harder to maintain its current ratio above 2.
4.5.2 Quick Ratio
Quick ratio, also known as acid-test ratio, is a liquidity ratio that is more refined and
more stringent than the current ratio. Quick ratio uses components of current assets that are said
to be most liquid. The current assets left out are inventory, prepaid taxes, and prepaid expenses
with the assumption that those assets are hard to liquidate in a short time period.
Figure 4.3 PT. XYZ's Quick Ratio
Source: Processed PT. XYZ’s financial statement
The average quick ratio of PT. XYZ for 5 years is 0.59, means each Rp 100,- of PT.
XYZ‟s current liabilities is covered by Rp 59,- of its current assets without inventories, prepaid
expenses, and prepaid taxes. This amount of ratio is still not good compare to the standard of
quick ratio which is 1. This ratio reaches its strongest point in year 2010, and after 2010 the ratio
is decreasing.
0
0.5
1
1.5
2
2008 2009 2010 2011 2012
Quick Ratio
50
4.5.3 Cash Ratio
Cash ratio is the most liquid indicator in assessing the real company‟s ability in fulfilling
its short term obligations on time.
Figure 4.4 PT. XYZ's Cash Ratio
Source: Processed PT. XYZ’s financial statement
The average cash ratio of PT. XYZ is 0.46, means that each rp 100,- of its current
liabilities is covered by Rp 46,- of its assets, or the current liabilities of PT. XYZ is covered by
46% of its cash. PT. XYZ is facing a problem in paying its obligations with cash. Moreover in
year 2008 and 2012 which have a cash ratio below 0,1. In year 2008, PT. XYZ still recovering
from its downturn in 2006, it still has a high amount of liabilities while it still has big amount of
inventory on hand and accounts receivable. PT. XYZ didn‟t have enough cash collected from the
collection of accounts receivable neither did from the sales of its inventory to be used to pay its
current liabilities. The cash ratio is growing better until year 2010, and decreasing after year
2010. In year 2011, PT. XYZ‟s cash in hand is decreasing for 43% while the current liabilities is
increasing for 16%, it makes PT. XYZ‟s ability to pay its debt with its cash is decreasing. The
same thing happens in 2012. The cash on hand in year 2012 is decrease for 29% while the
current liabilities is rapidly increase for 485%.
Generally, the strongest liquidity point of PT. XYZ is in year 2010. The current ratio,
quick ratio, and cash ratio of PT. XYZ reach the strongest point in year 2010. Before and after
0
0.5
1
1.5
2008 2009 2010 2011 2012
Cash Ratio
51
year 2010, PT. XYZ still has a low liquidity level, which means that PT. XYZ still facing a
liquidity problem before and after the appliance of the new sales rules. Moreover from year
2012, PT. XYZ is starting to produce its own product. It makes the current liability especially
trade payable is rapidly increase, and this resulted in a decrease of PT. XYZ‟s liquidity ratio.
4.6 Cash Conversion Cycle Analysis
Based on the inequality of working capital management capabilities within a company
then comes the need to measure the working capital management effectiveness. The popular
method to evaluate company‟s effectiveness in managing its working capital is by using the
approach that a company generally has the same purpose which is minimizing the working
capital on the condition that the company must have sufficient working capital to finance the
company‟s operating activity.
Minimizing the working capital can be achieved by accelerating the collection of cash
from the sales, increasing the inventory turnover ratio, and reducing the expenditure using cash.
All of those activities can be covered by using cash conversion cycle as a measurement tool.
(Keown, 2005)
Cash conversion cycle is the sum of the days sales outstanding (DSO) and the days sales
of inventory (DSI) reduced by the days payable outstanding (DPO). The following table is the
result of cash conversion cycle of PT. XYZ:
52
Table 4.8 PT. XYZ’s Cash Conversion Cycle Analysis
Component 2008 2009 2010 2011 2012 Average
Days Sales Outstanding 11.20 11.12 7.23 103.99 26.73 32.05
Days Sales of Inventory 90.36 60.46 23.84 201.16 367.13 148.59
Days Payable Outstanding 80.41 53.90 14.73 151.65 172.45 94.63
Cash Conversion Cycle 21.14 17.68 16.33 153.50 221.41 86.01
Source: Processed PT.XYZ’s financial statement
Generally, cash conversion cycle of PT. XYZ is in positive position, which means PT.
XYZ has sufficient cash to finance its operating activities. The smaller the amount of cash
conversion cycle is the better. The average cash conversion cycle for five years is 86.01. The
cash conversion cycle is growing better from year 2008 until year 2010, but starting from year
2011 the cash conversion cycle is declining. In year 2012, PT. XYZ has to wait for 221 days for
the cash to return to the company
4.6.1 Days Sales Outstanding
Days sales outstanding or in other word is average collection period, as stated before, is
used to assess the effectiveness of company in collecting the receivables resulted from the credit
sales made by the company. Days sales outstanding gives estimation about how many days the
accounts receivable can be collected.
Figure 4.5 PT. XYZ's Days Sales Outstanding
Source: Processed PT. XYZ’s financial statement
0
50
100
150
2008 2009 2010 2011 2012
DSO
53
4.6.2 Days Sales of Inventory
Days sales of inventory is used to assess the effectiveness of company in selling its
inventory. Days sales of inventory gives estimation about how many days the inventory can be
sold.
Figure 4.6 PT. XYZ's Days Sales of Inventory
Source: Processed PT. XYZ’s financial statement
Generally, the days sales of inventory is still below average. The average of days sales of
inventory for 5 years is 148.59 while PT. XYZ has a standard for its selling period. The
inventory has to be sold within 60 days after leaving the warehouse. Year 2010 is still the best
year among those 5 years. In year 2010, PT. XYZ sells its inventory within 90 days. The faster
the inventory sold, the better for PT. XYZ. But, the sales period that is too fast is also not good
for the company. The amount of days sales of inventory is growing better from year to year until
it reaches its peak in 2010. After 2010, the amount of days sales of inventory is decreasing.
Moreover in year 2012 when PT. XYZ start to self-manufacturing, the inventory is drastically
increase, and it makes PT. XYZ has piled up inventory where those inventories are can‟t be sold
yet because the product is not launched yet.
0
100
200
300
400
2008 2009 2010 2011 2012
DSI
54
4.6.3 Days Payable Outstanding
Days payables outstanding is used to assess the effectiveness of company in paying its
debt. Days payable outstanding gives estimation about the number of days required in the
payment of debt.
Figure 4.7 PT. XYZ's Days Payable Outstanding
Source: Processed PT. XYZ’s financial statement
For days payable outstanding, the greater the number is the better, but PT. XYZ has a
standard in the term of payment its debt. PT. XYZ has a payment term H+2, means PT. XYZ
will pay its debt two months or 60 days after the invoice received. Based on the table above, the
average of days payable outstanding for 5 years is 94,63. Although the longer the payment is the
better for PT. XYZ, but PT. XYZ has to adjust the payment period with the standard applied in
the company, 94.63 or 3 months is still below the standard applied in PT. XYZ.
4.7 Profitability Analysis
Profitability analysis measures the efficiency of a company in turning business activity
into profits. Profitability analysis also shows the company‟s ability to make profit from its
business activity. The value of profitability ratio is influenced by the components of income
statement and assets. In this research, the analysis tool used for measuring the profitability of PT.
XYZ are gross profit margin, net profit margin, and return on assets.
0
50
100
150
200
2008 2009 2010 2011 2012
DPO
55
Table 4.9 PT. XYZ's Profitability Ratios
Component 2008 2009 2010 2011 2012
Gross Profit Margin 15.34% 13.73% 20.7% 35.19% 24.82%
Net Profit Margin -2.02% 0.49% 8.26% -8.45% 2.67%
Return on Assets -14.29% 14.48% 27.2% -7.47% 1.12%
Source: Processed PT. XYZ’s financial statement
4.7.1 Gross Profit Margin
Gross profit margin is a key financial indicator used to assess the profitability of a
company's core activity, excluding fixed cost. Gross profit margin measures company's
manufacturing and distribution efficiency during the production process. It is a measurement of
how much from each dollar of a company's revenue is available to cover overhead, other
expenses and profits.
The ideal level of gross profit margin depends on the industries, how long the business
has been established and other factors. Although, a high gross profit margin indicates that the
company can make a reasonable profit, as long as it keeps the overhead cost in control. A low
margin indicates that the business is unable to control its production cost.
Figure 4.8 PT. XYZ's Gross Profit Margin
Source: Processed PT. XYZ’s financial statement
The gross profit margin of 15.34% in year 2008 means PT. XYZ may reduce the selling
price of its products by 15.34% without incurring any loss, and so on. Generally, PT, XYZ is
effective enough in managing its sales, inventory, and distributing process, it is proved by the
0%
10%
20%
30%
40%
2008 2009 2010 2011 2012
Gross Profit Margin
56
gross profit margin of PT. XYZ which is increasing from year to year, means PT. XYZ is more
efficient in distributing its products. Except for year 2008 to 2009 and 2011 to 2012 the gross
profit margin is declining, it is because in that time, the increasing in cost of sales is not followed
by a commensurate increase in sales. Moreover in year 2012, when PT. XYZ decides to self-
manufacture the company‟s products, the cost of sales is automatically increase, it makes the
gross profit decrease and affecting the gross profit margin. But PT. XYZ can increase the gross
profit margin by increasing the sales the year after.
4.7.2 Net Profit Margin
Net profit margin is a popular profitability analysis tool that shows relationship between
net profit after tax and net sales. It is computed by dividing the net profit (after tax) by net sales.
In this research, net profit is equal to gross profit minus operating expenses and income tax. All
non-operating revenues and expense are not taken into account because the purpose of this ratio
is to evaluate the profitability of the business from its primary operations.
Figure 4.9 PT. XYZ's Net Profit Margin
Source: Processed PT. XYZ’s financial statement
Net profit margin of PT. XYZ is increasing except from year 2010 to 2011. The
increasing of net profit margin means PT. XYZ is improving in its profitability, and the opposite,
the decreasing of net profit margin means the profitability of PT. XYZ is declining. The net
-10%
0%
10%
2008 2009 2010 2011 2012
Net Profit Margin
57
profit margin is in negative position in year 2008 and 2011, means PT. XYZ is suffering loss.
The loss is because on those years, the operating expense of PT. XYZ is higher than its gross
profit.
4.7.3 Return on Assets (ROA)
Return on Assets (ROA) is an indicator of how profitable company's assets are in
generating profit. Return on Assets ratio gives an idea of how efficient management is at using
its assets to generate profit. The higher return on assets is, the better, because the company is
earning more money on its assets.
Figure 4.10 PT. XYZ's Return on Assets
Source: Processed PT. XYZ’s financial statement
The return on assets of PT. XYZ is on the positive position except year 2008 and 2011,
means on those years PT. XYZ is not efficient in using its assets to generate profit. Generally PT.
XYZ is effective in using its assets to generate profit, although there are still negative results of
return on assets, but PT. XYZ can immediately back in business. The changing rules has an
impact to the return on assets also, when the accounts receivable decreased it affecting the
amount of assets invested and also the sales as well as the net income. Therefore, the return on
assets also decreased even reached the negative point in year 2011.
-20%
0%
20%
40%
2008 2009 2010 2011 2012
Return on Assets
58
Generally, the profitability of PT. XYZ is still fluctuating and tends to be worse in year
2008 and 2011. In those years, the gross profit margin is positive while the net profit margin and
the return on assets are negative, it is due to its operating expense which is higher than its gross
profit. It means PT. XYZ is not maximal in managing its assets to be turned into profit while PT.
XYZ has been spending a lot of expenditure for its operating activities.
59
CHAPTER V
CONCLUSION AND RECOMMENDATION
1. Conclusion
Based on the data analysis, can be concluded that:
1. PT. XYZ already performed the management and controlling process based on the Standard
Operation Procedure applied in PT. XYZ, but in the practice there still many dealers that do
not comply with the rules applied by PT. XYZ.
2. PT. XYZ has just implemented a new procedure for the company‟s sales. The sales which
was 100% performed in credit sales, turns into 70% cash sales and 30% credit sales.
3. Factors that affecting the amount of accounts receivable are divided into internal factors and
external factors. The internal factors are factors that come from inside of the company and
can be controlled by the company, there are credit sales, billing effort, sales procedure, and
doubtful accounts. The external factors are factor affecting the company's condition that
comes from outside which can‟t be controlled by the company, there is only one external
factor: dealers‟ financial condition.
4. The strongest liquidity point of PT. XYZ is in year 2010. The current ratio, quick ratio, and
cash ratio of PT. XYZ reach the strongest point in year 2010. Before and after year 2010, PT.
XYZ still has a low liquidity level, which means that PT. XYZ still facing a liquidity
problem before and after the appliance of the new sales rules.
5. Cash conversion cycle of PT. XYZ is in positive position, which means PT. XYZ has
sufficient cash to finance its operating activities. The cash conversion cycle is growing better
60
from year 2008 until year 2010, but starting from year 2011 the cash conversion cycle is
declining.
6. The profitability of PT. XYZ is still fluctuating and tends to be worse in year 2008 and 2011.
In those years, the gross profit margin is positive while the net profit margin and the return
on assets are negative, it is due to its operating expense which is higher than its gross profit.
2. Recommendation
After seeing the result of this research, the recommendations can be given by the writer
are:
1. PT. XYZ becomes a manufacturing company in 2012 which is good to improve the
company‟s profitability, but PT. XYZ should be more careful in managing the asset,
especially cash to improve the company‟s liquidity. PT. XYZ can improve the liquidity if the
company produces and sells the inventory faster, therefore the inventory turnover will be
higher and it will improve the cash conversion cycle and liquidity of the company.
2. PT. XYZ needs to be more active in collecting the receivables instead of only blocking the
dealer. Although PT. XYZ has Bank Guarantee as collateral, but sometimes it is ineffective
when the company has 2 dealers blocked while the company need money to finance its
operating activities.
61
LIST OF REFERENCES
Block, S. B., & Hirt, G. A. (2005). Foundations of Financial Management 11th Edition.
Boston: McGraw-Hill Irwin.
Dhahiri Hagyar Siwi. (2010). Analisis Pengaruh Manajemen Piutang terhadap Stabilitas
Arus Kas dan Likuiditas Perusahaan (Studi Kasus di PT."X"). Bogor: Institut
Pertanian Bogor.
Drake, P. P. (2007). Financial Ratio Analysis. Retrieved November 2013, from James
Madison University Web site:
http://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf
Edratna. (2008). Bank Garansi. Retrieved February 2014, from Wordpress:
http://edratna.wordpress.com/2008/01/07/bank-garansi-apa-dan-bagaimana-
kegunaannya/
Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management,
Limited Edition. New Jersey: Prentice Hall.
Indrajat Wicaksana. (2011). Analisis Pengaruh Pengendalian Piutang terhadap
Efektivitas Arus Kas (Studi Kasus pada PT.Z). Bogor: Institut Pertanian Bogor.
Keown, A. J., Martin, J. H., Petty, J. W., & Scott, D. F. (2004). Financial Management:
Principles and Application 10th Edition. New Jersey: Prentice Hall.
Stice, J. D., & Stice, E. K. (2004). Financial Accounting: Reporting and Analysis 7th
Edition. Tennessee: South Western.
Sugiyono. (2007). Metode Penelitian Bisnis. Bandung: Alfabeta.
62
Sutaryono. (2013). Mobil Murah dan UMKM. Retrieved January 2014, from Sindo News
Web Site: http://nasional.sindonews.com/read/2013/10/25/18/798078/mobil-murah-
dan-umkm
Warren, C. S., Reeve, J. M., & Fess, P. E. (2005). Accounting, 21st Edition. Toronto:
Thompson.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2011). Financial Accounting: IFRS, 1st
Edition. New Jersey: Wiley.
Zulkifli. (2009). Rekor Tertinggi Penjualan Mobil di Indonesia: 697.151 Unit. Retrieved
January 2014, from Kompas News Web Site:
http://otomotif.kompas.com/read/2009/01/07/1352014/rekor.tertinggi.penjualan.mo
bil.di.indonesia.607.151.unithttp://otomotif.kompas.com/read/2009/01/07/1352014/
rekor.tertinggi.penjualan.mobil.di.indonesia.607.151.unit
63
APPENDICES
2008 2009 2010 2011 2012
Current Assets
Cash 26,896,311 54,336,200 128,292,646 72,851,586 51,771,314
Restricted Cash - - - 227,611
Trade Accounts Receivable 19,076,040 14,860,450 18,307,891 10,686,675 4,251,122
Other Accounts Receivable
Related Parties 877,421 515,870 852,513 509,327 25,771,204 Third Parties 1,108,076 331,948 327,095 589,040 103,785,890
Inventories 123,393,016 35,807,948 50,970,162 70,192,637 444,020,876
Prepaid Taxes 42,485,829 37,523,212 35,330,323 31,803,105 10,846,111 Prepaid Expenses 229,619 1,583,290 657,568 865,524 145,000
Total Current Assets 214,066,312 144,958,918 234,738,198 187,497,894 640,819,128
Non Current Assets
Plant, Properties, and Equipment 77,016,382 78,344,054 79,437,612 85,483,697 103,583,068 Unused Plant, Properties, and Equipment 22,080,000 16,457,000 12,322,633 16,953,211 -
Total Non Current Assets 99,096,382 94,801,054 91,760,245 102,436,908 103,583,068
Total Assets 313,162,694 239,759,972 326,498,443 289,934,802 744,402,196
Current Liabilities
Short Term Debts - - - 397,287,045
Trade Accounts Payable
Related Parties 110,220,596 9,448,900 15,052,442 45,028,424 132,369,976
Third Parties 11,055,547 11,208,779 17,916,609 13,346,971 50,790,282
Taxes Payable 1,739,191 6,266,255 9,841,979 5,960,865 1,649,330
Accrued Expenses 36,125,744 50,411,161 53,686,347 47,777,385 72,007,498
Short Term Employee Benefit Liability - - - - 1,767,265 Due to A Related Party 240,900,000 207,349,604 - - -
Total Current Liabilities 400,041,078 284,684,699 96,497,377 112,113,645 655,871,396
PT. XYZ's Statement of Financial Positionyear 2008 - 2012
Non Current Liabilities
Asset Retirement Obligation - - - 1,433,537 - Post Employment Benefits Obligation 2,254,925 3,567,372 4,726,155 3,516,151 -
Accrued Warranty - - - - 14,188,376
Due to A Related Party - - 99,109,813 - - Deferred Tax Liabilities 3,472,653 4,087,561 3,196,103 3,585,439 -
Total Non Current Liabilities 5,727,578 7,654,933 107,032,071 8,535,127 14,188,376
Equity (Capital Deficiency)
Capital Stock 972,112,080 972,112,080 1,070,659,450 1,070,659,450 108,407,617
Foreign Exhange Rate Difference on Paid Up Capital (212,497,086) (212,497,086) (212,495,456) (212,495,456) (22,376,562) Deficit / Surplus (852,220,956) (812,194,654) (735,194,999) (688,877,964) (11,688,631)
Total Equity (92,605,962) (52,579,660) 122,968,995 169,286,030 74,342,424
Total Equity and Liabilities 313,162,694 239,759,972 326,498,443 289,934,802 744,402,196
2008 2009 2010 2011 2012
Net Sales 503,349,240 557,025,540 837,807,068 169,615,730 339,991,439
Cost of Sales 426,159,624 480,573,543 664,364,257 109,924,714 255,618,095
Gross Profit 77,189,616 76,451,997 173,442,811 59,691,016 84,373,344
Operating Expenses
Selling and Marketing 45,751,076 37,645,324 48,184,134 43,860,178 66,689,330
General and Administrative 38,298,362 35,468,326 31,318,540 30,156,529 8,595,068
Total Operating Expenses 84,049,438 73,113,650 79,502,674 74,016,707 75,284,398
Loss/Income from Operations (6,859,822) 3,338,347 93,940,137 (14,325,691) 9,088,946
Other Income (Charges)
Tax income - net 6,380,588 - - - -
Interest Income 1,030,286 2,160,331 3,324,545 2,198,766 -
Loss/Gain on sale of PPE (28,209) 109,304 171,343 48,732 (1,447,307)
Loss on impairment of assets (3,356,496) (2,093,781) - - 933,128
Loss/Gain on foreign exchange - net (36,951,306) 33,357,391 10,569,608 (10,873,586) -
Interest Expense - (6,194,128) (6,053,875) - -
Others - net 2,076,842 9,963,746 (234,677) (24,221) (1,564,453)
Other charges - net (30,848,295) 37,302,863 7,776,944 (8,650,309) (2,078,632)
Loss/Income Before Tax (37,708,117) 40,641,210 101,717,081 (22,976,000) 7,010,314
Tax Expense (Benefit) (3,324,461) (614,908) (24,717,426) (39,256) (1,220,000)
Net Loss/Income (41,032,578) 40,026,302 76,999,655 (23,015,256) 5,790,314
PT. XYZ's Statement of Comprehensive Incomeyear 2008 - 2012
Account Receivable Turnover
Credit Sales
Average Receivables
503,349,240 32.60 50,884,719 3.51
15,438,491.50 14,497,283
557,025,540 32.83 101,997,431.70 13.66
16,968,245.0 7,468,898.50
837,807,068.00 50.52
16,584,170.50
Average Collection Period
ACP = Average Receivable
Credit Sales/365
15,438,492 11.20 14,497,283.00 103.99
1,379,039.01 139,410.19
16,968,245.00 11.12 7,468,899 26.73
1,526,097.37 279,445.02
16,584,170.50 7.23
2,295,361.83
Days Sales of Inventory
DSI = Average Inventory
COGS/365
105,498,103 90.36 60,581,399.50 201.16
1,167,560.61 301,163.60
79,600,482 60.46 257,106,756.50 367.13
1,316,639.84 700,323.55
43,389,055 23.84
1,820,176.05
Days Payable Outstanding
DPO = Accounts Payable
COGS/365
93,882,049 80.41 45,672,223 151.65
1,167,560.61 301,163.60
70,966,911 53.90 120,767,826.50 172.45
1,316,639.84 700,323.55
26,813,365 14.73
1,820,176.05
Cash Conversion Cycle
CCC = ACP+DSI-DPO
2008 21.14
2009 17.68
2010 16.33
2011 153.50
2012 221.41
DATA CALCULATION
AR Turnover =
2008 2011
2009 2012
2009 2012
2008 2011
2010
2008 2011
2009 2012
2010
2009 2012
2010
2008 2011
2010
Liquidity Analysis
Currrent Ratio= Current Assets
Current Liablities
214,066,312 0.54 187,497,894 1.67
400,041,078 112,113,645
144,958,918 0.51 640,819,128 0.98
284,684,699 655,871,396
234,738,198 2.43
96,497,377
Quick Ratio = Current Assets-Inventories-Prepaid Taxes-Prepaid Expenses
Current Liabilities
47,957,848 0.12 84,636,628 0.75
400,041,078 112,113,645
70,044,468 0.25 185,807,141 0.28
284,684,699 655,871,396
147,780,145 1.53
96,497,377
Cash Ratio = Cash & Equivalent
Current Liabilities
26,896,311 0.07 72,851,586 0.65
400,041,078 112,113,645
54,336,200 0.19 51,771,314 0.08
284,684,699 655,871,396
128,292,646 1.33
96,497,377
Profitability Analysis
Gross Profit Margin = Gross Profit
Sales
77,189,616 15.34% 59,691,016 35.19%
503,349,240 169,615,730
76,451,997 13.73% 84,373,344 24.82%
557,025,540 339,991,439
173,442,811 20.70%
837,807,068
Net profit Margin = Net income
Sales
(10,184,283) -2.02% (14,325,691) -8.45%
503,349,240 169,615,730
2,723,439 0.49% 9,088,946 2.67%
557,025,540 339,991,439
69,222,711 8.26%
837,807,068
2008 2011
2008 2011
2009 2012
2010
2008 2011
2009 2012
2010
2010
2009 2012
2010
2008 2011
2009 2012
2010
2008 2011
2009 2012
Return on Asset = Net income
Average Assets
(10,184,283) (0.04) (14,325,691) (0.05)
287,112,364 308,216,622.50
2,723,439 0.01 9,088,946 0.02
276,461,333 517,168,499
69,222,711 0.24
283,129,207.50
2008 2011
2009 2012
2010
Sales & Account Receivable Process
Dea
ler
Dis
trib
uti
on
Co
mp
any
(P&
A S
ales
Dep
t)
Dis
trib
uti
on
Co
mp
any
(Sal
es F
inan
ce D
ept)
Start Dealer
Issue Purchase Order
Dealer Send Sales target Confirmation for 1
year
Sales Create Sales Order (SO) in SAP
Syatem
Output : Sales Order No created
Dealer Receive Invoice & Faktur
Pajak
Finish
Sales 1. Approved on dealer sales target
confirmation
Purchase Order
Sales Finance Receive Bank Guarantee and set up
in the system at dealer customer data based on amount in Bank
Guarantee Finance Sales System
Output : 1. Invoice & Faktur Pajak printing 2. Sals Journal 3. Delivery Order
Invoice & Faktur Pajak
Dealer
Issue Bank Guarantee with amount of sales target/month
Sales system Create Delivery Order, Packing
List by SAP Syatem
Dealer Receive Goods, DO &
packing list
LIST OF INTERVIEW QUESTION
Identification of Receivable Control
1. How is the flow of credit and the credit term that applied in your company?
2. What are the things need to be considered in giving credit for customers?
3. How many customers make sales on credit?
4. What are the criteria needs to be fulfilled by customer in order to get credit from
company?
Verification of Billing invoice
1. What are the documents needed in making sales invoice?
2. Who does responsible in making the invoice?
3. Is there any fixed schedule in collecting the receivables?
Receivable Management
1. How is the flow in collecting the receivables?
2. Is there any constraint in collecting the receivables?
3. What are the things that possible to happen if the receivables are uncollected or
customers are late to pay the receivables?
4. What are the actions taken by your company when the receivables are
uncollected or customers are late to pay the receivables?
5. Does your company have any SOP (Standard Operation Procedure) in the
process of receivable control?
6. What are the factors affecting the receivables?
Company’s Financial Condition
1. In the cash flow, what accounts that have a big amount of cash outflow?
2. In the cash flow, what accounts that have a big amount of cash inflow?
3. Does receivable give a big contribution in the financial statement?
4. Is there any different accounting treatment for trade and other receivable?
5. Does your company assess the financial performance internally? Or there is an
independent party in assessing your company’s financial performance?
6. How is the cash flow condition every month?
7. How do you manage the stability of the cash flow?
