Major Short report out on SEK, page-106

I've got no position and not looked at it in real detail but the idea that operating cash flow doesn't lie is false. Most pump and dump or accounting fraud schemes focus on artificially inflating operating cash flow by incorrectly putting certain income into operating cash flow and capitalising expenses (putting them in investment cashflow as though they're creating an asset that will give a return when they're not).

I haven't looked into it in any detail but a couple of things on first glance that stand out from the 2020 annual report.

1) Cash flows from investing activities includes $114.3m payment for intangible assets. A look at the footnotes shows that was all for work going towards software and website development. Is that actually work that will give a return for years into the future? It's impossible to know but that's one of the easiest ways to shift expenses from operations to investing cash flow.

2) The cash flows from financing includes $27.3m under "payment for lease liabilities". This would take a bit of work reading through to see why they're putting this in financing activities but if it's just standard payments for office leases and similar it is bizarre that they're putting them under financing.

3) Cash flow from operations includes $13.2m from government grants which from reading seems to be various benefits from covid-related government assistance programs like jobkeeper. The classification is fine but you should be aware that's not cash flow from continuing operations but a one-time benefit.

That's about half the overall operating cashflow that could be reversed just from areas that are easy to get past auditors without any real effort or the one-off government assistance. Again I'm not saying they're doing that but many dodgy companies in the past have and that's the sort of thing you need to look at rather than just operating cash flows.

In terms of overall cash flow, Seek has had a net increase in cash of ~$246m before FX in FY19 and FY20 combined. But they've borrowed ~$591m more than they've repaid in debt. About ~$250m of that difference is from dividends paid but it still leaves ~$90m going out the door for other things. The important question isn't so much whether the operating cash flow on paper is strong (it is) but whether all the outgoings in the investing cashflow are going towards things that will give a return in future. If they're well spent and going to give a return in future then the company is fine (no idea on valuation). If they're putting things in there that aren't genuine investments then the debt levels look pretty bad and they're going to have issues in the future.