Accounts Receivable and Payables
This research is based on an examination of Adobe Inc.’s financial performance and value. The report includes a capital use study of fixed assets as well as a working capital analysis. This report delves into the company’s working capital and how receivables, inventory, and payables are handled. Oracle Corporation, Microsoft Corporation, IBM, SalesForce.com, and Autodesk Inc. are among Adobe’s primary competitors.
The account receivable of Adobe Inc. was continuously increasing from the year 2016 to 2019. But in the year 2020 account receivables fall. Decreasing accounts receivables is beneficial since it indicates that the firm has converted the account receivable to cash. As a result, it’s just a balance sheet adjustment where you reduce receivables and boost cash. The cash and cash equivalents were grown by nearly 30% over the previous year, according to the balance sheet. Accounts payable, on the other hand, is steadily expanding. Account payable was $88 million in 2016, and it will be $306 million in 2020. AP grows in comparison to the previous period, indicating that the corporation is purchasing more products or services on credit rather than paying cash. Adobe Inc.’s balance sheet and income statement clearly demonstrate that sales were $9634 million in 2019 and climbed to $11626 million in 2020, with a cash balance of $4177 million in 2019 and $5992 million in 2020.
Figure 1. Account receivable and Payable
Working capital management ensures that the firm can cover day-to-day running expenditures while maximizing the utilization of its financial resources. Working capital is utilized to run a business and satisfy short-term commitments. It shows the business’s liquidity levels for controlling costs, and it includes inventory, cash, accounts receivable, and accounts payable (Bank of America, 2022).
As compared with last year, the working capital of Adobe inc. has increased. In the year 2020, the working capital was -$1696 million which increased to $2634 in the year 2020. Here working capital is used to manage receivables and cash by keeping track of a company’s assets and liabilities in order to ensure that it has enough cash flow to cover its short-term operational expenditures and debt commitments.
Figure 2. Working capital of Adobe Inc.
Working capital, according to the research, guarantees that the firm has adequate cash to meet its costs and debt. The goal for this firm was to reduce the cost of working capital while increasing the return on asset investments. In the year 2020, they reduced the current liability.
When comparing Adobe Inc.’s waking capital to that of Microsoft Corporation, Oracle Corporation, International Business Machines Corporation, Autodesk Inc., and SalesForce.com, it was discovered that Adobe Inc. is in the lead, followed by Microsoft Corporation and Oracle Corporation.
Figure 3. Working capital of Adobe Inc. with all competitors.
Zero inventory is a business approach in which organizations aim to have very little or no stock on hand. Zero inventory seems to be more competitive, adaptable, and cost-efficient than retaining and storing vast volumes of inventory, mainly to the just-in-time inventory method of quick turnaround periods (Unleashed Software, 2018). Adobe Inc., Autodesk Corporation, and SalesForce.com use the zero-inventory approach. Although the zero-inventory method is not suitable for all firms, it is ideal for many in today’s technology world.
To keep their cash flow in check, several businesses employ a cash conversion cycle. The CCC does this by tracking cash, or capital investment, as it passes through inventories and accounts payable (AP), revenues and accounts receivable (AR), and finally cash (Quickcarfinance.co.uk, 2022). For its cash conversion cycle and zero inventory technique, Adobe Inc. has different inventories, receivables, and fixed assets than its rivals, and its inventory, receivables, and fixed assets have varied over time.
The use of adobe’s fixed assets was reduced in 2020, although it remained over 8 times. This occurred as a result of Adobe Inc.’s ongoing expansion in revenue and fixed assets. Revenue was $5854 million in 2016, and it is expected to rise to $12868 million in 2020. It indicates that $1.00 spent in fixed assets creates $8.48 in revenue for Adobe Inc. over the course of the year.
Figure 4. Fixed assets utilization
When we compared Adobe Inc. to rivals such as Microsoft Corporation, Oracle Corporation, International Business Machines Corporation, Autodesk Inc., and SalesForce.com, we revealed that while Microsoft Corporation earns the most revenue, their fixed asset utilization is only 1.49 times. Adobe Inc., on the other hand, had the greatest fixed asset utilization of all rivals at 8.48 times. It shows that Adobe Inc. has made greater use of its fixed asset to produce income than any of its competitors.
Figure 5. Fixed assets utilization of Adobe Inc. with all competitors.
Conclusion
According to the overall research, Adobe Inc.’s account receivable declined in 2020, but its account payable climbed. Adobe Inc. had $2634 million in working capital, which was more than International Business Machines Corporation, Autodesk Incorporation, and SalesForce.com. The zero-inventory technique is used by Adobe Inc., Autodesk Corporation, and SalesForce.com. They have no inventory on their balance sheet as a result of this strategy. Adobe Inc. generated $8.48 in revenue by investing $1.00 in fixed assets. At 8.48 times, Adobe Inc. had the highest fixed asset utilization of all competitors.
Reference
Bank of America. (2022). Working Capital: What Is It and Why It’s Important. Bank of America. Retrieved 27 January 2022, from https://www.bankofamerica.com/smallbusiness/business-financing/learn/what-is-working-capital/.
Corporate Finance Institute. (2022). Cash Conversion Cycle. Corporate Finance Institute. Retrieved 28 January 2022, from https://corporatefinanceinstitute.com/resources/knowledge/accounting/cash-conversion-cycle/.
Unleashed Software. (2018). What is Zero Inventory and How Does it Work? – Unleashed Software. Unleashed Software. Retrieved 27 January 2022, from https://www.unleashedsoftware.com/blog/zero-inventory-work.
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