Is the honeymoon over?, page-26

I was just taking another look at the Sep 4C and the positive cash flow position of $359k.
Unfortunately I was left very disappointed as I reckon on a profitability basis AJX ended up still in the red for the first quarter of the year - possibly up to 900k in deficit, and the only way they reported a cash positive position was by drawing down on inventories that they had built up at 30 June.


Now I said yesterday that cash flow is not always a picture of actual profitability – but it can be useful to determine a possible picture.


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?.



I now worry that the December 4c position will be at similar level to the Sept 4C and that they may still be draw ingdown from their inventories to prop it up although at no where near the same level as in Sept.

I also suspect that the half year report will show a loss – after sales are matched with their true cost (I was hoping for a small profit) but going through this has made me change my mind.