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Revenue becomes cash only when customers pay. Inventory becomes cash only when it can be sold at an adequate price.
What is receivables and inventory stress?
Stress appears when customer balances or stock absorb more cash, age, lose value, or grow faster than the activity they support. Balance growth alone is ambiguous because expansion, seasonality, acquisitions, and price inflation can be legitimate causes.
How does the receivables-stress screen work?
The Receivables Stress interpretation requires its configured annual receivables observations to fire together. A match identifies a current concentration and collection-risk hypothesis, not default, fraud, or future write-off.
Receivables Heavy and Growing
Accounts receivable have grown several years in a row and form a large share of current assets
How do you verify receivables quality?
Compare receivables growth with revenue, calculate days sales outstanding using average balances, and inspect aging, customer concentration, payment terms, disputes, factoring, contract assets, and expected credit losses. IFRS 9 provides the expected-credit-loss framework.
How do you test inventory stress?
Compare quantity, mix, turnover, days, write-downs, purchase commitments, and gross margin. Separate raw materials, work in progress, and finished goods. IAS 2 requires inventory measurement at the lower of cost and net realizable value.
How does stress reach cash flow?
Rising receivables and inventory usually absorb operating cash, while stretched payables can temporarily fund them. Reconcile these movements with sales and collections under IAS 7. Check supplier-finance arrangements and cash advances.
What creates false signals?
Seasonality, acquisitions, rapid growth, foreign exchange, invoice timing, supply-chain buffers, and a single closing date can distort ratios. Conversely, write-offs can make receivables look cleaner after loss has already occurred.
How do you review a receivables-stress match?
Use the live panel to prioritize filing work. A zero result applies only to the current evaluated universe and does not clear inventory risk, which the panel does not directly require. Judge customer ability to pay, stock saleability, supplier terms, funding capacity, and valuation.