Kevin,
I stand-by my post#464 as a reasonable year-end estimate for
GRIN's cash position. Right now, I don't understand your question
about 'another $7.7M', however, to clear this up it may help you
if I present the following scenario(1) which also lets you 'see'
GRIN's $8M option cash at all times. I assume here that GRIN makes
$2.3M total net profit and has depreciation cash of $0.5M at
year-end (we can argue about these separately in other posts if
you wish) and let's just consider the partial option exercise
situation for now.
SCENARIO(1) GRIN receives their $8M option exercise money in
August and immediately buys a CD with it. Now they buy their
Christmas inventory with their YTD net profits, YTD depreciation
cash and use their credit line to pay for another $8M worth. After
distributing their inventory to Walmart, ToysRUs etc, they wait
until all 'accounts-received' (ie the stores pay GRIN for their
stuff) at year-end. Now they pay-off their inventory credit-line
balance plus interest and all the other expenses, to leave them
with $2.3M net profits and $0.5M depreciation money. So their
year-end cash position is $2.8M, PLUS the $8M CD giving a total
of $10.8M in cash (plus maybe $60k from CD interest).
Now, at all times you can see GRIN's $8M option cash. However,
buying a CD is not effective use of the cash and is only one step
up from putting the cash in an envelope and placing it under a Furby.
Much better to use the cash for inventory purchase, so saving the
high cost of credit line interest, which leads us to SCENARIO(2),
(what they actually are doing).
SCENARIO(2) GRIN receives their $8M option money and uses this plus
YTD net profit plus depreciation cash to buy their inventory.
After the stores pay-back GRIN ('accounts-received') at year-end,
they pay-off their expenses (but this time no credit balance and
interest) and are left with $10.3M (the $2.3M net profit plus the
$8M option cash) plus $0.5M depreciation money PLUS $0.2M in credit
line interest money that they have avoided in the 4th quarter. This
now adds up to a total of $11M year-end cash - better than scenario(1)
For valuation purposes, you can then use this $11M (but first
subtract any long-term debt balances in place at year-end) as the
net cash position to add to your valuation of the business.
(Based on a full option exercise, I estimate their year-end cash
position would be $3M more, that is, $14M)
FWIW,
Frank McV |
