MFM/BCCA 2015

Agenda� Introduction

� What we’re going to get out of this

� DSO – defined

� Why DSO – Cashflow & Health of a company

� DSO Calculations and variations

� Other Calculations needed with DSO

� Forecasting DSO

Introduction� Scott Jenkins, Sr. Manager – Collections Disney World

Wide Services

� ABC Television Network

� ESPN (TV, Digital, Print, International, Radio)

� Fusion

� Glendale/West Coast

� My Team

Why are we here?� Accomplish

� Understand DSO and why we use it

� Best DSO calculation for your business units

� Forecasting DSO and assist your Accounting/Finance team

� Networking

DSO – defined� DSO (Days Sales Outstanding)

� A measure of the average number of days a company takes to collect revenue after a sale has been made.

� DSO by Business Unit

� Low DSO � Fewer days to collect

� High DSO � Taking Longer to collect

Benefits of DSO & Trend Analysis� BENEFITS

� Generation of Cash

� Improves Cash Flow

� Put cash to use with reinvestment

� TREND ANALYSIS

� Collection department deficiencies

� Customer credit worthiness

� Industry changes

Variations of DSO & Different

methodolgies� There are several ways of calculating DSO:

� Basic Calculation

� Complications within the calculation that you need to factor in

� Seasonality

� High Current Sales/Low Current Sales

� Terms

� Simple/Quick Method using cash reports & agings

Calculations of DSO

DSO = (Accounts Receivable/Total Credit Sales) X Number of Days

DSO = (Accounts Receivable)/(Total Credit Sales/Number of Days)

Weakness of DSO� Weaknesses in DSO or those factors that might swing

DSO:

� Changes in Sales (Seasonality)

� Overdue amounts with Increase in Sales for one month � makes DSO look really good

� Decrease in Sales � makes DSO look really bad

Other Supporting Calculations to

DSO� There are three other Calculations you can use in

conjunction with DSO:

� Collection Effectiveness Index (CEI) – provides the percentage of receivables collected compared to what was available to collect over a period of time.

� Best Possible DSO (BPDSO) – What your DSO would be in the best-case scenario. Key word here is TERMS

� Average Days Delinquent (ADD) – The difference between your DSO and your BPDSO. Specifies average days that delinquent receivables are outstanding.� Removes fluctuations in sales

Calculations of CEI, BPDSO, and

ADDCEI = (((Beginning AR) + (Monthly Credit Sales) –Ending AR))/((Beginning AR) + (Monthly Credit Sales) – (Ending Current Receivable)))X 100

BPDSO = (Current AR/Total Credit Sales) X (Number of days in the period)

ADD = (Standard DSO) – (Best Possible DSO)

Forecasting DSO & Cashflow� So we know how to calculate DSO, now we can use this

as a way to forecast collection trends over time.

� Necessary information needed

� Three years of agings for a specific period

� Forecasted Revenues

� Template for Calculation of DSO

Forecast DSO – Step 1� Figure what your Three Year Trend is by buckets

FY 2012

Company - A/R Type Total March February January December & Prior

1,155,000,000$ 145,000,000$ 115,000,000$ 290,000,000$ 605,000,000$

Company - A/R Type Total March February January December & Prior

455,000,000.00$ 142,000,000.00$ 108,000,000.00$ 136,000,000.00$ 69,000,000.00$

$ Collected 700,000,000.00$ 3,000,000.00$ 7,000,000.00$ 154,000,000.00$ 536,000,000.00$

% Collected 61% 2% 6% 53% 89%

ATB AS OF DECEMBER 2011

ATB AS OF MARCH 2012

Forecast DSO – Step 2� Obtain Forecasted Revenue from Finance

FY 2015

Company - A/R Type Total March February January December & Prior

1,410,000,000$ 189,000,000$ 157,000,000$ 370,000,000$ 694,000,000$

avg collection % 46% 2% 6% 53% 89%

Estimated $ Collected 826,818,784.76$ 3,073,598.64$ 9,985,186.12$ 196,100,000.00$ 617,660,000.00$

Estimated Aging 583,181,215.24$ 185,926,401.36$ 147,014,813.88$ 173,900,000.00$ 76,340,000.00$

ATB AS OF DECEMBER 2014

Forecast DSO – Step 3� Input projected aging into your DSO calculation

formula

Days in Ending Ending Ending TotalPeriod A/R Current A/R > 60 A/R Billings A B C DSO

Oct-14 28 600,000,000 182,000,000 48,000,000 187,000,000 156,341,024 0.99 28 91Nov-14 35 604,000,000 252,000,000 178,000,000 260,000,000 156,628,010 0.61 21 84Dec-14 28 695,000,000 210,000,000 238,000,000 215,000,000 220,000,000 1.18 33 96Jan-15 28 795,000,000 334,000,000 59,000,000 340,000,000 240,000,000 0.92 32 88Feb-15 28 680,000,000 130,000,000 80,000,000 135,000,000 205,000,000 0.95 27 83Mar-15 35 595,000,000 190,000,000 280,000,000 195,000,000 265,000,000 0.78 22 85Apr-15 28 518,000,000 169,000,000 160,000,000 178,000,000 145,000,000 1.07 30 93

May-15 28 522,000,000 227,800,000 135,000,000 230,180,000 113,820,000 0.58 20 76Jun-15 35 650,000,000 310,000,000 130,000,000 315,000,000 104,820,000 0.59 16 79

A = Your Ending AR less your last two months of bil lingsB = A/Billings of the Prior two monthsC = B * # of days in the monthD = C + Prior two months' days in the month

Website information for

Calculation of DSO

http://www.accountingtools.com/collection-effectiveness-index

http://blog.e2banytime.com/accounts-receivable-performance-indicators-collection-effectiveness-index/

http://www.credittoday.net/public/A-Better-Way-to-Track-Collection-Effectiveness.cfm

http://treasurycafe.blogspot.com/2011/08/collection-effectiveness-index-good.html

Questions & Answer session

My information� Scott Jenkins, Sr Mngr Disney WWS

� Scott.j.jenkins@disney.com

� 860-766-3798 (W)

� 860-329-3431 (C)