AJX Fundamentals thread, page-12

I’ve mentioned this before in an earlier post on the release of the September 4C (see an extract below), but I reckon they ran down (or used) inventories acquired last financial year to help generate the positive cash flow  in September 17 and may do so again to a degree in December. – If this is the case it will show up in the 17/18 half year financial statements released next year in February 2018 (so check the inventory number there, when released, against the June 2017 annual report inventory number – it may be a lot lower).

I also doubt that they will be able to maintain positive cash flow into the March quarter as by end December their inventories could be very low and they will need to build them up. This means spending money – but this will probably be explained by the need to build up inventories for new customers etc… - which is likely to be correct, but will probably mean negative quarterly cash flow again. It’s also why the company has a $5m debt facility.






Extract:
For the Sept quarter AJX reported that gross margins had improved from 18% (Jun) to 23% (Sep), and that actual cash receipts to Sept were $5.764m.


Now I will assume for this purpose that cash receipts were similar to actual sales (sales may have actually been slightly higher but they were probably around 5.5-6m – so let’s stick with the receipts as being close to sales).
Also the calc’s I’m doing below are somewhat crude / basic as there will be timing differences in the quarters etc … so please take that in mind.


Now if we apply the 23% gross margin to Sept cash receipts then we get cost of goods sold of $4.438m – but strangely AJX reported that COGS were actually only $3.149m  - lower by some $1.289m.


Now go back to the June qtr 4C where they made a 18% gross margin.
In that 4C they had receipts of $6.844m so applying a margin of 18% gives cost of goods sold of $5.612, yet they reported a far higher COGS of $7.357m – a difference of $1.745m.


Also take a look at the 30 June 2017 Annual Report and you’ll see healthy inventories of $2.091m.
What I suspect is that they built up their inventories at the end of the year and have run them down in the first quarter, which has helped them achieve the positive cash position. Without running down inventories, the quarter would have shown a negative cashflow position – and I reckon if we had a balance sheet for 30 September, it would show that inventories have moved down from $2m to $1m or possibly lower.


Also take a look at the forecast for the Dec quarter (included in the Sept4c) which shows forecast COGS of $4.017m some $0.868m higher than Sept, yet they have stated that the Dec quarter may be a difficult quarter and indicated that receipts may be level or lower that the Sept quarter – yet their forecast COGS is actually higher?.