Hundreds of cases where auditors have missed things like this? If you go on that assumption might as well give up on investing as all the numbers are inaccurate. Usually the numbers are relatively accurate however the trend is either picked up too late or people ignore the numbers and believe the hype. This is a pretty basic company to audit particularly with regard to the "red flag" regarding revenue recognition, the accounting policy seems straight forward and its easy to straight line a contract based on provision of service.
Furthermore you will note that deferred revenue has increased by approximately $5-6m I just wonder how much of the receivables increase is offset by an increase in deferred revenue for invoices raised in advance, this will have no impact on the p&l but is merely a balance sheet gross up. Even if we assume the whole portion of of the movement in receivables is due to an increase in deferred revenue this still leaves a further increase in deferred revenue in relation to additional cash received in advance, which is favourable to the business but makes it all the more necessary to keep an eye on receivables because that is essentially the source of future cash, it appears the company will earn $24m in revenue in the current year and receive no cash consideration for it (adjusting for any gross up in receivables outlined above).
You're other point regarding underlying earnings and not adjusting for the revenue, perhaps may be valid but, depending on the business the deployment of capital is expected to result in revenue going forward, ie if woolworths used the capital to open a store the store continues to operate for years after IPO costs have been expensed.
The red flag for me relates to the capitalisation of expenses in relation to the intangible assets,. $8m of "product" costs were capitalised in the current period with total amortisation of these approximately $2.1m., if we assume a less conservative approach your actual underlying profit for the year is
Underlying NPAT 10.8
Less capitalised expenses $8m
Add back amortisation $2.1m
Adjusted NPAT is $4.9m
This should give us a more realistic view when we look at the cash flow as well
$21m in operations
Less $8m in payment for intangibles
Gives us $13m in cash flow, well above our NPAT with the variance appearing to come from an increase in deferred revenue and increase in other liability amounts.
These findings make me slightly more cautious given profit is being inflated by what appears to be a rather aggressive stance on capitalisation and agressive cashflow metrics.
Just my opinions and thoughts please dyor.
3PL Price at posting:
$1.88 Sentiment: None Disclosure: Not Held
(20min delay)
