“Looking at the change in net receivables over a fiscal period deflated by average NOA will give you a sense of the magnitude of accrued revenue attributable to net credit sales.”
I tried to apply what I understood (in the excel sheet attached below) but cannot exactly comprehend what this statement implies.
It is exactly what it states. The absolute level of accruals on the balance sheet is relative to the size of the operating assets, on either an ending balance basis or an average basis indicated by the Balance Sheet Accruals ratio. For the subcomponents of accrual activity, one may simply focus on the relevant line item ( like the ratio you mentioned above; Net Receivables) from the balance sheet The analyst would be concerned if the absolute levels of the accruals ratio is high; even more worrisome would have been if they were consistently trending.
Thanks sir.