Receivable days, part of cash conversion cycle is of extreme important. Reading a company financial statement is never complete without a hard look at their receivable days, inventories and creditor days. Because this is one place where signs of aggressive accounting or operational problems show up.
From another angle, this is a place to look for strengths — operational strength and pricing power. That is to say, a company with well-oiled engine will keep their cash conversion cycle in check which mean not just account department but operation side, each having the same attitude of collect one time, pay on time and lean inventories. These type of company will has a beautiful cash conversion cycle period after period. A company whose products they sell which has a pricing power will has their receivable days in check as customers will pay on time or even earlier to get the products. For company with pricing power, it is actually quite hard to know if this is a well ran company in a short period as it may not show up easily. Perhaps inventories is the place to look for first sign of trouble.
So what is the normalise receivable days for shipping company? While I have some rough ideas, I am not sure. And why receivable days rather than the whole cash conversion cycle which include inventories and payables?
Different industry and different business model produces different cash conversion cycle. Shipping company has a different working capital requirement and the focus is going to be the “cost of providing the service” rather than things like cash conversion cycle. Basically, in general they have low risk for inventories and payable with little money stuck there. While higher attention must be pay to receivables, it is not a big deal as customers will always pay on time in order to has the vessel working for them. My basic is built on this so I am expecting to see low receivable days, usually less than one quarter of revenues and pay little or no attention to inventories and payables when reading their financial statements.
Something strike me today and I decided to take a look at some of the listed shipping companies receivable days. While I have not spend time doing more in depth reading, raw data say I was wrong. All companies except 1 showed that they have a shorter receivable days than what I was expecting. Perhaps due to cyclical natural of the industry and the number of days will start increasing as the cycle change. But I am not surprise with the exception because their receivables are “screaming” louding while I went through the financial statements for the past few quarters.
Time well spent I guess. My focus on shipping companies in the future will be “cost of providing the service”
Sale – S, Trade debtor – TD
# – period used for calculation is 3 months
^ – period used for calculation is 6 months
^^ – period used for calculation is 1 year
* – sales dropped by 50% or more
CH Offshore# : S -18, 245, TD – 10,541. 52 days
Courage Marine#* : S – 7,457, TD – 2,678. 32 days
EZRA ^: S – 176,065, TD – 132,638. 136 days
Jaya#* : S – 37,764, TD – 26,976. 64 days
Marco Polo Marine# : S – 8,960, TD – 1,916. 19 days
Mercator# : S – 42,406, TD – 15,373. 33 days
NOL ^^ : S – 9,285,125, TD – 828,706. 33 days
Samudera ^^ : S – 443,252, TD – 49,683. 41 days
Swiber # : S – 102, 941, TD – 61,986. 54 days
