Companies want to know exactly the intervals of time it takes to earn income from their investments by calculating the average period of maturation.

Companies should have controlled all aspects of your purchase payment and collection of sales, especially in times of crisis like the present. That which characterizes this economic crisis is the lack of confidence in terms of liquidity due to credit constraints. It is therefore fundamental calculation Middle Period of Maturation, Ie the time it takes, on average a company to collect on sales made from the time you pay for purchases that have allowed such sales.

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The Middle Period sub periods Maturation

Production companies need to source raw materials. These raw materials take time to be supplied by providers, and are few days in the warehouse to be used in the production process. This is the first sub-period: Period Supply (PA). The second period is the time it takes to produce a given product, called Production Period (PF). The third period is the period in which a product, already completed, take to sell, called Period of Sale (PV). A fourth period is the time it takes to collect the sale made, Period Collection (PC). Finally, we should keep in mind that companies do not pay your purchases on the date made, so there is also a Pay Period (PP).

The average period of maturation in a productive enterprise

The average period of maturation (PMM) arises from the following simple formula:

PMM = PA + PF + PV + PC – PP

That is, the average period of production (PMM) is the average time interval between when a company pays its suppliers for purchases until the sales charge.

The average period of maturation in a commercial enterprise

A commercial enterprise has different times to those of productive enterprises, hence, that it does not produce, your period of supply, and match sales period, and has manufacturing period. Hence its formula is as follows:

PMM = PV + PC – PP

Thus, it can happen if a business enterprise takes to pay its suppliers and customers quickly copper, the company has a negative average period of maturation, so the company buys from its suppliers first, then sells to its customers, customer charges, and finally pays its suppliers. You can then use the money collected from its customers to finance their purchases.

Relationship of Maturation Medium Term Working Capital to

The Working Capital defined as the part of Current Assets Current Liabilities-financed, in fact, what it does is finance purchases before cashing out by sales, hence the higher the average period of maturation, the greater will be the working capital, since the greater the need for an internal financing fund of the company.
By contrast, if a company has a mean period of maturation negative (usually this can happen with some commercial companies) can afford to have a negative working capital, without this being a symptom of financial distress for the company.