James Clarke HRC: I put this list together prior to reading any posts after Jim's 'challenge'
Possible Red flags:
Balance sheet:
Inventories +21% vs 4% Rev increase [Inventories are more concerning in a retailer or wholesaler than in a service co like this, yet it is still a red flag.
Net Accounts Rec looks OK, but the allowance for doubtful accounts jumped - raising that allowance is generally more conservative - it decreases income, but volatility in that allowance bears watching - I'd be looking at the footnotes to see why.
Prepaid Expenses & Other Current assets +54% vs 4% Rev increase - OCA is potential slush bucket -
These led to a 21% increase in current assets, but were still only a 2% increase in total assets: Revenue and earnings overstatements lead to increases in asset accounts[or reductions in liability accounts], yet overall, total assets only grew modestly...inline with revenues.
Payables all dropped substantially from -54% for AP -20% in Accrued interest payable & other liability another slush bucket and the largest of the payables accounts. Offsetting this is HUGE increase in deferred income taxes indicating a mismatch between financial statements and tax reporting.
Overall, internal accounts seem rather volatile and several of the items would make me want to dig deeper.
Income Statement:
Revenue and operating expenses look fine - slow growth, in line with one another. SG&A took an outsize jump of 13% form 00 to 01, a bit worrisome, but not indicative of fraud...just poor cost control at hq.
The doubtful accounts provision took a huge drop 99 to 00 effectively juicing income - I'd be looking for 'splaining in MDA on that.
Substantial one-time charges/losses in both 99 & 01 that analysts might ignore...are they a serial restructurer?
Cashflow statement:
The big changes in allowance for doubtful accounts flows thru from above.
Large mismatch between PPE change on BS [-97mm] vs investment in PPE on cashflow statement of 440mm, or 235 mm if the 'non-strategic assets sold were PPE assets - This looks pretty red flaggish, but I'm not sure how to interpret it - It should have caused me look further though.
How'd I do, Professor Clarke? |
