No worries. I like to think we all learn something from these discussions.
Yes any prepayment will be a cash receipt and reported in the quarter it was received.
yes your calculations on prepayments is correct and your previous statement on 30 to 60 payments terms is also correct.
You can only really use the 4C numbers as presented in the cash flow report to assess the performance of a business as far as cash flow of the business for the quarter and overall cash position year to date. It is really a check and balance to see if the company is managing cash flow properly and is able to meet their operational expenses going forward. If a company is burning cash you want to have a look at section 8 of the 4C where it will show the cash generation / burn for the quarter relative to the available cash on hand. Dividing these numbers gives you an estimate of the number of quarters they can fund at the current cash burn. As Halo is cash generating for the quarter they don’t have any concerns with cash reserves at the moment. Therefore I think it is unlikely that they will need to do a CR anytime soon unless for expansion or acquisition. Again these things in my view are unlikely given THM acquisition is so recent but you never know.
As a guide to business performance, the preamble at the front of the 4C report does give an insight into business performance with regards to sales and outlook going forward but again very hard to tie back to contributing margin and profit in terms of dollars.
As you pointed out, to understand a company’s performance you need to look at revenue not cash receipts. Revenue is recognition of sale at delivery of goods or any other income generated from the business such as interest and investments. This is the only point you can line up clearly your cost of sales and all business expenses to the generated revenue. Hence half yearly and annual reports are guides to true business performance.
So you can probably see now why I challenged your original comment on your assessment of business turn around based on cash receipts.
What I look for in a 4C report is consistency and if there is any significant increase in spending and is that increase justified in any way. Halo appears to be fairly consistent over this year so if sales are increasing and costs are controlled then further cash generation and profit are likely.
Prepayments are of value to Halo as it is interest free cash you can put to work in your business. It is the same as a business not paying on time they are using Halo’s cash to fund their business. With previous quarter over-dues at 3M we are funding our customers to the tune of around 100k per year at the deemed cash rate so even more at commercial interest rates if that was allowed to continue. That is why it is important to manage over dues and bring that rate down and cash into Halo which management has started to do. As the old saying goes cash is king.
HLF Price at posting:
3.0¢ Sentiment: Hold Disclosure: Held
