Golden rule of credit analysis: Cash Flow First!

Reading from Bottom to Top for FY19

1. The short term trade financing raised was used to finance AR ($26.7K) and Inventory. Follow the red lines to track the movements of cash from short term loan (STL).

2. Inventory of $22.0K was jointly financed by the suppliers (in the form of AP – $13.3K) and short term loan ($8.6K). Follow the green lines and the red lines to see the two sources of cash to finance inventory.

3. Subsequently, the restated NCAO stands at $47.3K, and there is $9.1K of STL remain.
4. The restated operating cash flow is sufficient to pay for interest and debt, with the restated CADA stand at $9.8K.

5. At this point, restated CADA is insufficient to pay for CAPEX. We would expect the remaining shortfall of $28.7K of CAPEX to be financed by long term loan (LTL). Follow the yellow lines and purple lines to see the two sources of financing for CAPEX

6. Now, the remaining balance of LTL and STL is $9.4K and $9.1K respectively. They sum up to $18.5K, which is used to finance equity share buyback.

7. Notice the structural mismatch here, as company ABC’s share buyback was financed partially with STL! ($9.1K)
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