the way I look at it (and remember no accounting training here) is like this
they have a contract worth 1 million - it can only be billed at particular milestones and the invoice is paid 30 days in arrears.
the first milestone is achieved on 31 March - say it took 2 months and they bill on 31 March for 500,000
February and March they have to pay staff and other expenses totalling $420,000.
They have thus made an EBITDA of $80,000. However the invoice won’t be paid until around 5 May, so in the interim their cashflow is negative 420,000
There will be cash coming in all the time from other billings, but if they are growing it’s very easy for the cash to be a problem even while the profit is growing.
many services companies use factoring - ie. sell their invoices to someone in order to get the cash in quicker. I never did as my bank was supportive and provided me with an overdraft to cover these issues but cashflow is a constant problem in services companies.
TNT Price at posting:
13.0¢ Sentiment: Buy Disclosure: Held
