Englotechs Trade Receivables

Saw this article on the Edge Daily on Englotechs: 24-09-2007: MARC downgrades Englotechs rating on rising trade receivables

• MARC said for FY2006, Englotechs registered a negative RM4.4 million CFO, while trade receivables rose to RM56.6 million in FY06 (FY05: RM38 million) due to an easing in credit terms by the company to boost revenue.

Let's do some simple comparisons to see if what MARC is saying is reasonable on this trade receivables issue for Englotechs.

Quarterly rpt on consolidated results for the financial period ended 31/12/2004 - trade receivables as at fy 2004 Q4 = 27.104 million. (A year ago it was at 20.963 million)

Quarterly rpt on consolidated results for the financial period ended 31/12/2005 - trade receivables as at fy 2005 Q4 = 37.968 million.

Quarterly rpt on consolidated results for the financial period ended 31/12/2006 - trade receivables as at fy 2006 Q4 = 56.998 million!

So if one use fy 2003 trade receivables of 20.963 million as a guide, Englotech's trade receivables has been compounding at an annual rate of 39.6%!

Now this is certainly a cause of concern.

More so when the statement reads " trade receivables rose to RM56.6 million in FY06 (FY05: RM38 million) due to an easing in credit terms by the company to boost revenue".

To boost revenue by easing credit term? That sounds suicidal when the company has to incur more borrowings! In business, boosting revenue by offering easier credit is simply suicidal when the company itself is not on a firm financial footing.

Now Consider this issue also.

For its fy 2004 Q4 earnings, Englotechs was in a nett debt of 27.738 million.

For its fy 2006 Q4 earnings, Englotechs was in a nett debt of 98.907 million!!!

WOW! Company nett debt has increased by some 71 million!!!

Here is Englotech's latest earnings reported in Aug 2007. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Total cash equivalents is at 11.988 million, while total loans is at 137.689 million!!!!!! Which means Englotech is now at a nett debt 125.701 million!!!!!!!!!

Englotech's trade receivables is now at 67.628 million!!!!!!!!!

WOW!!!

Yet another incredible situation!!

And DID the company says it has gone on a exercise to boost sales revenue by offering easier credit terms?

Company is so financially weak, loans keep increasing and the company offers easier credit terms??!!

Is it Christmas everyday?