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Message
Help with 10-Q Interpretation
Posted on 1/29/14 at 10:24 pm
Posted on 1/29/14 at 10:24 pm
Here is a link to the 10-Q in question ( LINK)
Financial Statements --> Consolidated Statements of Income shows $42.7 MM growth in quarterly Operating Income from $56.7 MM last year to $99.4 MM this year, driven primarily by an increase in revenues.
Financial Statements --> Consolidated Statement of Cash Flows shows $5.7 MM growth in quarterly Net Cash Provided by Operating Activities from $102.2 MM last year to $107.9 MM this year.
So the surge in operating income to me is a major plus, and it seems more reflective of the big improvement in revenues. But mentally I can't reconcile why the statement of cash flows doesn't indicate a similar growth. There are a lot of differences between the two quarters in stuff like accounts receivables change, etc.
Which of the two is more meaningful? The goal of this exercise was to get a basic pulse of the core assets, without being obscured by the recent capital investments. But I am fairly new to analyzing financial statements and really learning as I go. Any comments?
Financial Statements --> Consolidated Statements of Income shows $42.7 MM growth in quarterly Operating Income from $56.7 MM last year to $99.4 MM this year, driven primarily by an increase in revenues.
Financial Statements --> Consolidated Statement of Cash Flows shows $5.7 MM growth in quarterly Net Cash Provided by Operating Activities from $102.2 MM last year to $107.9 MM this year.
So the surge in operating income to me is a major plus, and it seems more reflective of the big improvement in revenues. But mentally I can't reconcile why the statement of cash flows doesn't indicate a similar growth. There are a lot of differences between the two quarters in stuff like accounts receivables change, etc.
Which of the two is more meaningful? The goal of this exercise was to get a basic pulse of the core assets, without being obscured by the recent capital investments. But I am fairly new to analyzing financial statements and really learning as I go. Any comments?
5
Posted on 1/29/14 at 10:30 pm to Sigma_
They probably lessened their credit standards and increased the length the buyer has to pay back at coupled with growth.
ETA: it also looks like they pre paid a bunch of expenses.
ETA: it also looks like they pre paid a bunch of expenses.
This post was edited on 1/29/14 at 10:33 pm
Posted on 1/29/14 at 11:05 pm to reb13
quote:This is an oil and gas production company, so they don't sell directly to consumers.
They probably lessened their credit standards and increased the length the buyer has to pay back at coupled with growth.
What kind of expenses would they want to prepay?
Thanks for chiming in.
Posted on 1/29/14 at 11:20 pm to Sigma_
quote:
This is an oil and gas production company, so they don't sell directly to consumers.
Whoever pays them got an extension/lessened their standards.
They could be pre paying machine rent, insurance, and any kind of expense that occurs predictively.
ETA: I would be interested to see how the cash flow from this quarter compares to the same quarter last year.
This post was edited on 1/29/14 at 11:21 pm
Posted on 1/29/14 at 11:52 pm to Sigma_
quote:
Which of the two is more meaningful?
Profit is an opinion. Cash is a fact.
Posted on 1/30/14 at 6:02 am to LSURussian
quote:Fair enough, but if there is a big growth in revenues and minimal change in operating cost, where did all of the operating cash go?
Profit is an opinion. Cash is a fact.
Is there anything obvious from the link I provided? I would have linked directly to each of the two pages, but with the java menus you have to click the bar on the left after following the link.
On the statement of cash flows, the biggest swings that comprise the difference are in the "Changes in operating assets and liabilities" section - accounts receivable, prepaid expenses, settlement of asset retirement obligations. Is this just a reflection of how they are moving the cash around, versus a big growth in operating profit? Maybe I should be comparing the operating cash flows before taking these items into account to measure the growth in cash generation of the base assets.
This is not some investigative journalism here, I think it is probably something obvious and me being a novice at financial statements.
I have a decent position in this company and am researching more thoroughly before extending my position.
ETA: To the earlier poster, the statements specifically compare this quarter to the same quarter last year.
This post was edited on 1/30/14 at 6:11 am
Posted on 1/30/14 at 11:31 am to Sigma_
It's never going to match up perfectly because (generally speaking) cash from operations is after interest and tax while operating income is before interest and tax. In any event, with this much difference, it looks like operating income includes a number of accruals, which could be (but doesn't have to be, particularly on a one quarter basis) indicative of poor earnings quality.
Posted on 1/30/14 at 11:34 am to Sigma_
quote:Possibly accounts receivables increased. Possibly accounts payables decreased. Both of those use cash and are not directly correlated with sales growth.
if there is a big growth in revenues and minimal change in operating cost, where did all of the operating cash go?
This post was edited on 1/30/14 at 11:35 am
Posted on 1/30/14 at 11:41 am to LSURussian
True, and if it's a service-based business, there could be significant revenue coming off the balance sheet (deferred revenue account). The cash inflow could have already occurred, though revenue recognition rules would require the revenue to be realized only after the service has been performed.
Posted on 1/30/14 at 1:06 pm to Sigma_
Calculate the cash-flow based and balance-sheet based accrual ratios on a four-quarter rolling basis going back eight quarters or so and see if there's been any deterioration in either. There could be some seasonality in the business that isn't reflected equally on the income statement and cash flow statement. There could also be the revenue recongition issue I mentioned earlier, i.e. consider Amazon prime. You pay $79 per year but the service is delivered to you throughout the year. The $79 is recognized instantly on Amazon's cash flow statement as a cash inflow, but revenue recognition rules likely require the $79 to be recognized in 4 increments of $19.75 ($79/4) on the income statement since the service is delivered throughout the year. So you'd get some mismatch between the two statements, but this would be captured (in part) if you look at things on a rolling basis.
Posted on 1/30/14 at 10:53 pm to Sigma_
I am an auditor and I know I'm not really going out on a limb here, but Cash Flow info is more valuable IMO because it really shows the main vital signs of the company. I learned from a good manager early on that the cash flow statement has some of the most important info the investor can use. Not exactly info you haven't heard before I am sure, but analyze those cash flows brotha
Posted on 1/30/14 at 11:16 pm to Sigma_
Variance analysis on a single quarter's operating cash flows to the prior year's quarter is a bitch and doesn't yield a whole lot of useful information. It's a small time span and there's a lot of noise in the working capital accounts.
Posted on 1/31/14 at 12:39 am to JumpingTheShark
Auditing a large corps cash flow is miserable as shite.
Posted on 1/31/14 at 3:08 pm to reb13
Yeah it sucks when they are unorganized and shite doesn't reconcile
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