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Understanding One Important Aspect Of BreadTalk Group Limited’s Business – Trade Receivables

BreadTalk Group Limited (SGX: 5DA) is a food company that has three main business segments: Bakery, Restaurant, and Food Atrium.

As a bakery and restaurant operator, BreadTalk purchases raw material in bulk, processes the raw material into finished products, and sell those products in its stores.  This requires investment in working capital, mainly inventory and trade receivables.

In this article, we will assess one part of the company’s working capital – trade receivables. What we want to know is how well the company is managing its trade receivables.

To do so, we will look at two things. First, the value of closing receivables in the last five years and second, the receivable days in the last five years.

Value of receivable

As a business, BreadTalk would like to have low trade receivables in relation to sales.

The idea here is simple. The lower the trade receivables in relation to sales, the lower the capital required to fund those trade receivables.

So how did BreadTalk’s receivables change in the last five years? Let’s see below.

Source: BreadTalk 2012-2016 Annual Reports

To put the above into perspective, revenue and receivable have grown by 37% and 33%, respectively, during the period.

In other words, receivable’s growth rate is marginally lower than revenue growth during the past five years.

Trade receivable days

In simple terms, trade receivable days indicate the average number of days that a business needs to collect cash from its credit sales.

Here, we will use closing trade receivables/ sales x 365 days to calculate receivable days. Ideally, we would like to see a stable or declining trade receivable days over the years.

So how BreadTalk’s trade receivable days change in the last five years? Let’s see below.

Source: BreadTalk 2012-2016 Annual Reports

Here, we see that receivable days have been relatively consistent between six and eight days, averaging about 7 days.

Conclusion:

In summary, we see that BreadTalk’s trade receivable management has stayed at almost at the same level in the last few years.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.