The following quote was taken from the 2012 annual report of Hewlett-Packard. HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these parties. If the financial condition or operations of all of these distributors’ and resellers’ aggregated accounts deteriorate substantially, HP’s operating results could be adversely affected. The ten largest distributor and reseller receivable balances, which were concentrated primarily in North America, collectively represented approximately 14% of gross accounts receivable at both October 31, 2012 and October 31, 2011. No single customer accounts for more than 10% of accounts receivable.

a. Why would an investor or other user of HP’s financial statements be concerned that certain individual customers represent a large portion of the receivables balance?
b. If problems arose with some of these customers, explain how it might affect HP’s financial statements.

  • CreatedAugust 19, 2014
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