Bill,
When you say that we should check out BioVail's balance sheet, what exactly catches your eye? Did you mean instead to refer to the cash flow statement, and the fact that it is negative?
For my fundamental analysis, I've always looked at the following ratios (since we analyzed a company's annual report in Engineering Economics, about 100 years ago):
Liquidity Ratios (Current Ratio, Quick Test)
Leverage Ratios (Debt to Total Assets, Times Interest Earned)
Activity Ratios (Inventory Turnover, Fixed Assets Turnover, Total Assets Turnover, Average Collection Period)
Profitability Ratios (Return on Total Assets, Profit Margin, Return on Net Worth)
I do that for the past two fiscal years, and extrapolate from the latest quarterly report for the present year. That gives me an idea of how the company is supposedly doing (if the numbers are true).
To determine if the price is high or low, I look at P/E (and how it compares with the growth rate), P/book, P/sales, and P/cash flow.
I see that BioVail has a negative cash flow, and very high price/book and price/sales; that inventory turnover dropped (because the inventory virtually doubled and the sales are practically flat); and I notice the average collection period jumps from 119 days on 12/31/95, to 57 days on 12/31/96, to 163 days now.
However, I'm wondering what else I'm missing, that doesn't show up in these formulas? What leads you to suggest that they are playing games with revenue recognition? (Are you saying that they have long-term contracts, and can choose when they want to show the revenue?) |
