End of Financial Year, page-41

Sure cash flow can be influenced by management to some extent. Don't you think it would be easier to alter earnings through revenue recognition policies, depreciation assumptions or cost capitalisation/expense decisions instead of trying to influence terms of payables/receivables? The fact is that cash flow is what investors can rely on to truly assess the economic reality of a company. Sure operating cash flow can be increased by not maintaining working capital, but how much room for improvement in operating cash flows do you think this method would really give to management?

Regarding your days of revenue comment, I'm not exactly sure what you're talking about here but I assume you are referring to something similar to days of sales outstanding (please correct me if this is not the case). What you are saying is only correct if sales do not increase. If sales remain consistent yet DSO increases then yes the company will be receiving less money. However, if sales increases, like I'm sure they will in line with the ramp up of phase 2 to design rates, then an increase in DSO does not necessarily mean that the company will receive less cash. You have more or less picked a specific scenario to suit your argument even though it does not reflect the current reality of the business.

The fact that you think the company is losing money highlights the importance of cashflow. According to the P&L they company is is running a gross loss. Dare to have a guess at what they gross return would be if depreciation on PPE wasn't expensed through cost of sales? It is too simple to say a company is losing money when looking at a measure that includes non-cash charges. Another example is deferred exploration and evaluation expenditure. This has a negative effect on net profit however it does not mean that the company is losing money as it is a cost that was previously capitalised, again highlighting how the P&L does not always reflect the economic reality of the company.

It seems as you have a basic grasp on issues that can be found when comparing profit with cash flow, however you have also shown that you do not fully understand the position that Lynas is currently in. For example you say that cash and earnings are going in opposite directions, this is not true. Both earning and operating cash flow have been improving over the last few periods. These improvements have been sustainable and are not a result of managements decisions as you have suggested. For example, there have been a number of reasons that free cash flow has increased, which include decreased production costs associated with LAMP scale up, decrease Capex and favorable rare earth prices. Although the company is still running an accounting loss, year on year performance has been improving, just as cash flow has improved.

In the end cash flow is a very important measure, particularly for Lynas. Like I'm sure a lot of investors has done, I value Lynas based on a Free Cash Flow model. This is appropriate given the company's position with regards to debt, net losses and dividends (lack thereof). With cash flow we can forecast the company's ability to pay future debt obligations or to make payments to any other providers of capital. Considering the significant level of debt I would say that these types of forecasts are extremely important and really it is no wonder that so much importance is placed on cash flow figures.

IMO