Awcomgitman changing credit standards hint relaxing

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Unformatted text preview: ebts from scoring decisions increase, then the scoring system must be re-evaluated. For a demonstration of credit scoring, including use of a spreadsheet for that purpose, see the book’s Web site at www.aw.com/gitman. Changing Credit Standards Hint Relaxing the credit standards and/or credit terms will increase the risk of the firm, but it may also increase the return to the firm. Bad debts and the average collection period will both increase with more lenient credit standards and/or credit terms, but the increased revenue may produce profits that exceed these costs. The firm sometimes will contemplate changing its credit standards in order to improve its returns and create greater value for its owners. To demonstrate, consider the following changes and effects on profits expected to result from the relaxation of credit standards. Effects of Relaxation of Credit Standards Variable Direction of change Effect on profits Sales volume Increase Positive Investment in accounts receivable Increase Negative Bad-debt expenses Inc...
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This document was uploaded on 01/19/2014.

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