Sales Activity Analysis

Sales activity analysis seems straightforward until interrelationships among financial factors are explored. In a business that sells a product, the dollar amount and volume of sales are not difficult to arrive at. Sales and attendant expenses, however, are the drivers, or causes, of a company's assets and liabilities, which are the ending totals on a balance sheet.

These totals are intertwined with cash flow from three categories, operating, investing, and financing activities. Part of a cash flow analysis is depreciation, which is not an ordinary expense and not an outlay of cash. The annual financial report has three sections--income statement, cash flow statement, balance sheet--that reveal the relationships among all these factors that management deals with daily on a practical level.

Accounts Receivable

Sales revenue may be good and the financial reports will reflect that, but an astute reader and manager will also look at the relationship of sales to accounts receivable, among other factors. If sales are good, but a high percentage of customers have been extended credit, or are not paying on time, the company could have cash flow troubles. Like inventory and other crucial elements, accounts receivable must be controlled or sales activity analysis will show other financial areas are adversely affected.

Several measures are effective in keeping accounts receivable in check, but not all are easy. Some customers may have to be cut off from further credit until they pay their bill. The general credit period may have to be shortened from, say, 30 days to 25 or 28. Only in urgent circumstances would a business stop extending credit at all.