Favorite Stock to Short, page-280

What about their current liabilities, how will they meet their trade and other payables of $1,268,681 with only $186,773 in general cash at bank and on hand? From their FY19 Annual Report, credit terms state this balance is due within less than 12 months.

FLT's quick ratio (acid test) as at 31 December, 2019 is ($186,773,000 + $100,333,000* + $585,951,000) / $1,610,511,000 = 0.5421

@SLewis

I think you need to look at Current Assets in their entirety, not just at general cash and financial investments.

As of 31 Dec 2019 FLT had:

General Cash: 187m$

Financial Investments: 100m$

Trade Receivables: 586m$ (those, too, are receivables within 12 months)

Contract Assets: 344m$ (idem, as above)

Current Tax Receivables: 19m$ (ditto)

Other Current Assets: 80m$

Derivatives: 4m$

Total Current Assets (Ex Client Cash): 1,320m$

So, while it is true that this is a negative-working-capital business, where agent’s fees are mostly collected upfront and payments occur with a delay, I do not see your calculation above as being a correct representation of FLT’s capability to service short-term liabilities.

Also, don’t forget that whatever Revenue is generated during the next twelve months will be subject to a similar cash cycle, i.e. fees mostly collected upfront (which is not showing up in Current Assets just yet, because that Revenue has yet to be recognised), and corresponding payments settled with a delay.

Hope this helps clarify the matter, cheers.