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Raksha Bandhan
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DebtorDays
What are “Debtor Days”
1) The time a business takes to get its customers to pay is called Debtor Days
2) In most businesses the customers have a credit period of let’s say 30 days
3) Businesses usually do not pay on delivery
4) How does then one calculate Debtor Days
5) Let’s say a business usually receives Rs 100 lac from its clients in 365 days
6) Let’s say current outstanding is 10 lac
7) Then how many days it will it take to receive the Rs 10 lac is called Debtor Days
So if the business does Rs.100 lac credit business in 365 days, it means that it will receive Rs 10 lac in(10/100)x365 days
9) Which is 36.5 days
10) Obviously if Rs100 lac of credit business is done in 365 days, then 10 lac (current outstanding) which is 10% of total credit business should take 10% of the usual annual credit time (365 days) which turns out to 36.5 days
11) So if the usual credit terms is 30 days then we can say this business isn’t collecting fast enough
12) Any business that collects faster is more “Cash Rich” and can take more advantage of opportunities that show up
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PEG
PEG Ratio
1) An iPhone is more expensive than Oppo
2) But what if an i Phone helps you to impress your Client
3) A Maruti Alto may be less expensive than a Honda City but what if a Honda City gets you a business deal because your Client saw you as more capable than the person who came to him in an Alto
3) The PEG Ratio is somewhat similar
4) Some stocks may seem very expensive to buy but because the growth rate is high for such a stock, the investor can recoup his investment faster than what the P/E Ratio indicates
5) Let’s say the P/E Ratio is 10. In simple words it means it will take 10 years to recoup the Rs 10 invested if there’s no growth in earnings. That is quite a long period.
6)But the scenario changes if there’s growth in earnings year on year. Hold your horses and understand a little more
7) What if the earnings growth rate of this stock is to 100%
8) This means that if you paid Rs 10 for a Rs 1 earning then by end of year 1 the earning is already Rs 2 & the stock price itself would double to Rs 20 at the very least
9) Because any company that doubles profit will have its P/E re-rated from 10 to a higher value because the demand for such a stock would soar
10) If the Growth Rate was 50% then you would double your investment in a little less than 2 years
11) Therefore the Expensive Price you pay for the stock cannot be seen in isolation
12) It has to be seen in combination with the Earnings Growth Rate
#cwm #cfp #article
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Original Artist of the Image : Mr Ghanshyam Deshmukh
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