Question

The asset side of the 2017 balance sheet for Oracle Corporation is below. The company reported total revenues of $37,728 million in 2017 and $37,047 million in 2016. Use this information to answer the required.

Oracle Corporation CONSOLIDATED BALANCE SHEETS (excerpts)
in millions	May 31, 2017	May 31, 2016
Current assets:
Cash and cash equivalents	$ 21,784	$ 20,152
Marketable securities	44,294	35,973
Trade receivables, net of allowances for doubtful accounts of $319 and $327 as of May 31, 2017 and May 31, 2016, respectively	5,300	5,385
Inventories	300	212
Prepaid expenses and other current assets	2,837	2,591
Total current assets	74,515	64,313
Non-current assets:
Property, plant and equipment, net	5,315	4,000
Intangible assets, net	7,679	4,943
Goodwill, net	43,045	34,590
Deferred tax assets	1,143	1,291
Other assets	3,294	3,043
Total non-current assets	60,476	47,867
Total assets	$134,991	$112,180

Required:

a. What is the company’s gross amount of receivables at the end of 2017 and 2016?

b. Compute the common-size amount for gross accounts receivable, for both years. Interpret the year-over-year change in this ratio.

c.    Compute the allowance for doubtful accounts to gross accounts receivable, for both years. Interpret the year-over-year change in this ratio.

d. Based on the ratios you calculated, form an opinion about the quality of the company’s accounts receivable.

Answer 1

• All working forms part of the answer
• Requirement ‘a’

		May 31, 2017	May 31, 2016
A	Net Trade Receivables	$                             5,300.00	$                          5,385.00
B	Allowances for doubtful accounts	$                                 319.00	$                              327.00
C=A+B	Gross Trade Receivables	$                             5,619.00	$                          5,712.00

• Requirement ‘b’

		May 31, 2017	May 31, 2016
A	Gross Trade Receivables	$                             5,619.00	$                          5,712.00
B	Total Assets	$                       1,34,991.00	$                    1,12,180.00
C=A/B	Common Size %	4.16%	5.09%

The above analysis shows that Gross receivables have decrease by $ 93 [5712 – 5619]. The decrease is around 1.63% [93/5712]. However, common size analysis shows that Gross Trade receivables have decreased by 0.93% [5.09% - 4.16%] in relation to total Assets.

This decrease is also affected by the fact that Total Assets have increase since May 31, 2016. Decrease in gross receivables in relation to total assets, as compared to last year si due to fall in gross receivables and increase in total asset amounts.

• Requirement ‘c’

		May 31, 2017	May 31, 2016
A	Allowances for doubtful accounts	$                                 319.00	$                              327.00
B	Gross Trade Receivables	$                             5,619.00	$                          5,712.00
C=A/B	Allowance to Gross accounts receivables	5.68%	5.72%

Allowances account balance has decrease by $ 8 over a year which is around 2.45% decrease.
However, when observed in relation to gross receivables, the allowances have decreased by only 0.04% over the year.

• Requirement ‘d’

On the basis of above analysis, following observations can be summarised regarding accounts receivables:

--Accounts receivables have decreased, which states that cash collection from them are more regular.
--Allowances balances have been decreased implies that accounts receivables are good and account uncollectible have decreased.