Issues with Shine's business and accounting, page-24

Not overly concerned with EBITDA when considering ability to repay debt, although it is important as an indicator. I understand there is a lag between work performed, cost of work performed, and cash received for work performed, and these must all be accounted for and tied to the appropriate period via accrual accounting methods. Somewhat idiosyncratic to the type of business given the potential length of cases taken on, from early stages through to cash received. No issues here.

The issue is with the link between EBITDA/NPAT and cash. $30m NPAT was achieved in FY15, as you have said. As NPAT increases, should we also not see a corresponding increase in OCF? There will not be an exact match due to length of cases etc., but there should still be a slight positive correlation (i.e. NPAT goes up, OCF goes up). This was the case FY13 to FY14, however, not FY14 to FY15 (increase in NPAT from $22m to $29m, decrease in OCF from $11.3m to $10.4m). Why is this? Did the majority of cases taken on during FY14 have a > 1 year turnaround time? These are not questions to be answered, simply putting it out there. I focus on cash because, as benfool has stated according to his experience in a PI firm, WIP is often a best guess operation, which could cause a muddying of the waters in respect to metrics such as EBITDA/NPAT (although SHJ have obviously taken steps to clear the air in this regard). I also focus on cash as debt is repaid with cash, not EBITDA. Will be interesting to see how the link progresses between the two over the coming years - assuming accurate and prudent reporting of EBITDA, one would certainly expect to see a positive correlation.