Companies inflate sales by selling on credit, only to term it bad debt later
20-Dec-2013 •Vikas Vardhan
A business is run on the cash it generates and a sustainable long term growth is also derived from it. But what if the company is selling on credit and is not able to recover all its dues? This not only lowers profit margin but also raises questions about its intentions if this goes on for a consistent period. Conclusions could be drawn that such companies may have done this to show higher sales on the books; only to be written off as bad debt later on.
Below is the list of companies, which over the last few years have been regularly writing off bad debt amounting to more than 1 per cent of their revenues, thus lowering their margins from 1 per cent 10 per cent. Another common characteristic of these companies is that their debtors as a per cent of sales is substantially high for most of them. The list is dominant by television broadcasting and IT companies. Hinduja Ventures is ahead of all in the list with bad debt written off amounting to more than 10 per cent of the revenues and 21 per cent of the debtors in FY13.