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Thread: economic facts that can't be spun part 9 - corporate 'receivables' grow and lengthen

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    Banned Melonie's Avatar
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    Default economic facts that can't be spun part 9 - corporate 'receivables' grow and lengthen

    (snip)"As our economy struggles to stabilize and start growing again, there is a high focus on debt and debt repayment. Areas of concern range from the massive amounts of consumer debt, to record-breaking government debt, to corporate debt — particularly low-quality debt, which is increasing at record rates.

    One item that has escaped scrutiny is the amount of Accounts Receivable held on the books of U.S. businesses. For large U.S. public companies (those with market capitalization is in excess of $250 million), total Receivables exceeded $41 trillion in the first Quarter of 2010. In the first Quarter of 2009, Accounts Receivable totaled $36 trillion.

    Not only do these large Receivables represent an absolute high level of debt owed by others, but the companies have taken on ever-increasing Receivables risk.

    This 14% growth in Receivables substantially exceeds growth in corporate revenues over the one-year period.

    It could be argued that some of the increase in Accounts Receivable is a reflection of improved business. Unfortunately, there is one important negative sign: Average Days Payable for all U.S. public corporations have stretched from 93 days to 136 days. A substantial increase in Receivables may not only reflect slow pay by customers; it may also include low estimations for Uncollectibles, early recognition of Sales, or even fictitious Sales. The misrepresentation of Accounts Receivable, or improper Revenue recognition, is the leading fraud technique identified by the Committee of Sponsoring Organizations of the Treadway Commission () in its comprehensive study analyzing fraudulent financial reporting for the period 1998 to 2007.

    While there is talk of improving corporate liquidity, I see no such evidence in the numbers above. This increase in Days Payable reflects poorly on the quality of the Receivables held."(snip)



    from


    Thus a fundamental question exists in regard to this commentary which basically mirrors a question from the thread discussing GM's purchase of a Subprime Auto Loan finance company. Does it really count as a 'recovery' when increased 'sales' are being executed, but not actually being paid for ?

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    Default Re: economic facts that can't be spun part 9 - corporate 'receivables' grow and lengt

    Good catch.

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    Banned Melonie's Avatar
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    Default Re: economic facts that can't be spun part 9 - corporate 'receivables' grow and lengt

    and for anyone who thinks this subject doesn't matter ...

    (snip)"From the CISCO conference call: "Days Sales Outstanding surge from 27 to 41 days."

    Oh really Mr. Chambers?

    The book cooking continues. CISCO comes out with "great" earnings but hidden in there is the fact that they're writing their own financing - and holding it off-book. Banks are still carrying HELOCs behind underwater firsts at or near PAR, even when the first is non-performing. Those loans have a literal zero recovery value. What could possibly go wrong with hiding asset quality (or lack thereof) off balance sheet where nobody can see it? Nobody remembers Lucent? Enron? It wasn't THAT long ago. Will it get CISCO or these banks? I have no clue but this much I do know - nobody ever hides good news, they sing from the rafters. You judge what's going on here.

    Now add to this deterioration in customer pays and tell me what is coming. Anyone remember Lucent and Winstar (which bought my company, incidentally, then blew sky high over, in no small part, their inability to pay Lucent.)

    Winstar, if you recall, was the largest corporate bankruptcy in American history - until MCI blew up, that is.

    But the story wasn't Winstar blowing up. It was that Lucent was nearly bankrupted with all their "vendor held" financing, and ultimately was forced into a merger, with essentially all of their shareholder value destroyed.

    All because they got cute with vendor financing in order to keep the Ponzi Scheme of "indefinite growth" going - and thought that the economy would continue to "be ok" or even "improve."

    They were wrong, and got destroyed.

    There were others who noted what CISCO was doing months ago, but who else was sounding the alarm and raising hell about the risk in that strategy?

    Nobody.

    Indeed, last quarter Chambers was out on the conference call claiming both excellent visibility and a very bullish outlook! What a different three months makes.

    Tonight the stock is trading $21.85, down from the close of $23.73 and well below the 52-week high (in late April) of $27.74.

    Better hope $21 holds, because if it doesn't it's a LONG way down.

    Betcha this ain't over, and I still want to know exactly how much of that vendor financing crap is off book and exactly how well it is performing.

    CISCO better pray that I'm wrong in my macro view, because if I'm not things are going to get very interesting for them."(snip)

    from


    Obviously the looming question is how many other (supposedly) highly profitable US 'darling' companies are also booking profits that don't actually exist because their customers aren't actually paying for the goods and services they are purchasing via 'vendor' financing !?!?

    Of course the probable flip side is that most of these customers probably aren't considered sufficiently creditworthy to have obtained mainstream financing for their purchase at a reasonable rate of interest, such that for CISCO it was a choice between financing the sale themselves versus no sale at all.

    But on the reverse flip, the worst that could have happened to CISCO by refusing to provide 'vendor' financing would be zero profit zero loss. However, if 'vendor' financed customers go belly up, not only will CISCO face zero profit, but a potential loss ( since they invested their own funds in the costs of the labor and materials necessary to produce the product, and may not be able to recover enough money to offset these costs ).

    ~
    Last edited by Melonie; 08-11-2010 at 04:25 PM.

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