Let’s see how fast Asaleo could take advantage of people’s everyday needs…
CASH CONVERSION CYCLE
A company’s “cash cycle”, or “net operating cycle”, measure how many days it takes to convert its assets into cash flow.
On average, it takes Asaleo 109 days to convert its assets to cash. It took DSH 27 days and it still go broke.
Note above how DickSmith’s inventory turnover was 101 days to Asaleo’s 153 days; its receivables are paid sooner at 14 days to Asaleo’s 16 days while it managed to delay payment to suppliers a whole 27 days earlier than Asaleo’s suppliers getting theirs in 60. It is also interesting seeing the increasing (deteriorating) inventory, payable and cash cycles between the two companies.
These should put to rest a possible counter-point that Asaleo still survives even though it always have low Quick Ratio, low cash and receivables in proportion to its CL and Total Liabilities (TL).
But DickSmith also survives not being able to pay its CL with CA… until it couldn’t anymore and goes bankrupt.
But you’re saying… mate, Asaleo is not a retailer, it’s a manufacturer selling its products to retailers and professional markets. So it’d be unfair to compare it to a retailer’s turnover cycle.
Unfair, maybe, but cash is king and a highly leveraged company with poor cash flow will go bankrupt if it cannot pay its due in time.
But let’s be generous and compare Asaleo to an engineering/construction company – one I own fair number of shares in – and see how it compares.
Note Monadelphous’ cash cycle is about 1/5 of Asaleos. Note too MND’s FY2014’s cash and receivables alone more than pay for all its liabilities (Notes Payable chart).
That is an example of management who are able to manage their business and cash; are conservative and know how to not lose their shirts when the hard times hit. With all that cash and a badly battered share price, MND did not buy back their shares, did not borrow or further leverage their balance sheet to play the market and enhance the share price – instead, they use the cash to expand into new industry, new geographies.
Managers who run a business like a business do things very differently to those who run it for financial gains alone. As Buffett and the masters will tell us, in the end it’s the business that will win out.
Again, I own MND up to my eyeballs.
AHY Price at posting:
$1.50 Sentiment: Sell Disclosure: Not Held
