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GuruFocus has detected 2 Warning Signs with Red Hat Inc \$RHT.
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Red Hat Inc (NYSE:RHT)
Accounts Receivable
\$427 Mil (As of Nov. 2016)

Accounts Receivable are created when a customer has received a product but has not yet paid for that product. Red Hat Inc's accounts receivables for the quarter that ended in Nov. 2016 was \$427 Mil.

Accounts receivable can be measured by Days Sales Outstanding. Red Hat Inc's Days Sales Outstanding for the quarter that ended in Nov. 2016 was 63.39.

In Ben Grahams calculation of liquidation value, accounts receivable are only considered to be worth 75% of book value. Red Hat Inc's Liquidation Value for the quarter that ended in Nov. 2016 was \$-1,198 Mil.

Definition

Accounts Receivable is money owed to a business by customers and shown on its Balance Sheet as an asset.

Explanation

1. Accounts Receivable are created when a customer has received a product but has not yet paid for that product. Days sales outstanding measures of the average number of days that a company takes to collect revenue after a sale has been made. It is a financial ratio that illustrates how well a company's accounts receivables are being managed.

Red Hat Inc's Days Sales Outstanding for the quarter that ended in Nov. 2016 is calculated as:

 Days Sales Outstanding = Account Receivable / Revenue * Days in Period = 427.436 / 615.26 * 91 = 63.39

2. In Ben Grahams calculation of liquidation value, Red Hat Inc's accounts receivable are only considered to be worth 75% of book value:

Red Hat Inc's liquidation value for the quarter that ended in Nov. 2016 is calculated as:

 Liquidation value = Cash and Cash Equivalents - Total Liabilities + (0.75 * Account Receivable) + (0.5 * Inventory) = 1294.867 - 2813.291 + 0.75 * 427.436 + 0.5 * 0 = -1,198

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Be Aware

Net receivables tells us a great deal about the different competitors in the same industry. In competitive industries, some attempt to gain advantage by offering better credit terms, causing increase in sales and receivables.

If company consistently shows lower % Net receivables to gross sales than competitors, then it usually has some kind of competitive advantage which requires further digging.

Average Days Sales Outstanding is a good indicator for measuring a companys sales channel and customers. A company may book great revenue and earnings growth but never receive payment from their customers. This may force a write-off in the future and depress future earnings.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Red Hat Inc Annual Data

 Feb07 Feb08 Feb09 Feb10 Feb11 Feb12 Feb13 Feb14 Feb15 Feb16 Accts Rec. 88 127 129 139 185 255 303 361 468 510

Red Hat Inc Quarterly Data

 Aug14 Nov14 Feb15 May15 Aug15 Nov15 Feb16 May16 Aug16 Nov16 Accts Rec. 284 355 468 285 302 397 510 326 360 427
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