Once a darling, now an evil

I am going to start this new series with all your love and wishes. Series “Once a darling, now an evil” is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth. This series is an extension of my previous series Numbers tells you everything, this series I have left in midway due to some technical issues with my database.

I am starting this series with one of the graphic company which has an all-time high price of Rs.2100+ and now traded at Rs.0.25. and high of Rs.13.47 in the year 2007. Due to unavailability of data prior to 2006 and unavailability of the annual report prior to 2010. I have to start showing number analysis from 2006 only.

PEM 01

Wow!!! What a strong cash flow from operating activities!!! From the above data, the company seems strong but….

When we look at the balance sheet with putting P&L with it then….

PEM 02

The company need Rs.193 cr of fixed assets to do a sale of only Rs.97 cr. Sales are just a ~10% of the entire balance sheet size. Debtors of the company were Rs.221 cr and inventory worth of Rs.79 cr compared to the sales of Rs.97 cr in FY06. Debtors were almost 2.28x of sales and inventory was 81% of sales. Look at the below data.

PEM 03

Few more interesting data…

PEM 04

Means when a company sell its services, the company gets payment after 828 days in FY06 and 826 days in FY07. In addition, the company takes 295 days to convert its inventory into the finished products in FY06 and that increase rapidly as COVID-19 has grown.

Now, the question is if a company has higher debtors and inventories then how CFO remains much stronger.

PEM 05

The answer is here. Working capital changes have contributed that boost into the CFO. If we look component of it then debtors have majorly reduced but still in FY07, debtors as a % sales remain as high as earlier due to a sharp fall in the sales.

If we have look at these basic number analyses and not deep crunching then also, we have avoided investment into such company and have saved our wealth. I have not talked about the company’s investment worth of ~Rs.130 cr in its subsidiaries in FY10 and both the subsidiaries are located at Mauritius. Also, ~Rs.134 cr of advances recoverable in FY10. There are many such points but without looking at all such points, we have avoided and saved our wealth.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

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