{"id":1450,"date":"2024-06-02T11:12:45","date_gmt":"2024-06-02T09:12:45","guid":{"rendered":"https:\/\/kurtovicfinancial.com\/?p=1450"},"modified":"2024-06-02T11:12:45","modified_gmt":"2024-06-02T09:12:45","slug":"how-to-spot-a-troubled-company-through-its-cash-flow","status":"publish","type":"post","link":"https:\/\/kurtovicfinancial.com\/en\/how-to-spot-a-troubled-company-through-its-cash-flow\/","title":{"rendered":"HOW TO SPOT A TROUBLED COMPANY THROUGH ITS CASH FLOW?"},"content":{"rendered":"\n

Cash flow analysis is an excellent tool to spot a company in trouble. <\/strong>But arriving to meaningful conclusions requires a bit of cash flow gymnastics.<\/p>\n\n\n\n

We need to stretch the analysis past reported figures<\/strong> to understand that the company has been performing cash flow gymnastics itself by stretching payments to suppliers and shrinking Capex.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

1)<\/strong> When a company is growing, change in trade payables is normally a positive figure in the cash flow statement (provided payment terms remained the same). However, in this case, change in trade payables in 2023 of EUR 662k seemed too high, and it was the major driver behind the operating cash flow (NOCF) figure.<\/p>\n\n\n\n

Excluding the effect of extending payments to suppliers, NOCF would have been only EUR 200k!<\/p>\n\n\n\n

2)<\/strong> Originally, the company cut Capex significantly, well below its maintenance Capex level, \u201csaving\u201d another EUR 235k.<\/p>\n\n\n\n

Why did they extend payments to suppliers and cut Capex?<\/strong><\/p>\n\n\n\n

To be able to repay the debt of EUR 288k.<\/p>\n\n\n\n

If they hadn\u2019t extended payments to suppliers and cut Capex, they wouldn\u2019t have had the money to repay debt, i.e. they would have defaulted.<\/p>\n\n\n\n

This way they bought some time.<\/p>\n\n\n\n

What will happen in 2024?<\/strong><\/p>\n\n\n\n

Unless they manage to at least triple their FFO, they will be in serious trouble because most likely suppliers will not tolerate extended payments (now at 75 days), they have to invest because it is the type of business where you can\u2019t underinvest for a long time\u2026and given their significant leverage, refinancing will be difficult and expensive\u2026<\/p>\n\n\n\n

_____<\/p>\n\n\n\n

Cash flow is the best tool to run simulations and \u201cwhat if\u201d scenarios<\/strong>, because you can immediately see the effect on the closing cash and how the cash flow would have looked like under different assumptions.<\/p>\n\n\n\n

This company\u2019s cash flow shows us how the company managed to survive in 2023 and buy some time, but 2024 will be a new challenge to stay afloat.<\/p>\n\n\n\n

I would not like to be their banker or supplier\u2026<\/p>\n\n\n\n

_____<\/p>\n\n\n\n

If you want similar analysis on your company or your key customers, suppliers, or competitors, feel free to get in touch.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Cash flow analysis is an excellent tool to spot a company in trouble. But arriving to meaningful conclusions requires a bit of cash flow gymnastics. We [\u2026]<\/span><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,22],"tags":[133,47,59],"class_list":["post-1450","post","type-post","status-publish","format-standard","hentry","category-credit-guide-2","category-credit-insights","tag-cash-flow","tag-credit-analysis-2","tag-financial-statements-analysis"],"_links":{"self":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1450","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/comments?post=1450"}],"version-history":[{"count":1,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1450\/revisions"}],"predecessor-version":[{"id":1451,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/1450\/revisions\/1451"}],"wp:attachment":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/media?parent=1450"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/categories?post=1450"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/tags?post=1450"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}