ANALYST’S

DIARY

Sleight of hand
Thanks to accrual accounting, many companies show
profits on the revenues they are yet to receive

A
ccrual accounting is an interesting concept. It
allows a company to recognise its revenues in
the same period during which it sells its goods
or services, irrespective of the fact whether it receives
the cash or not. The amount yet to be received is
entered under the head ‘debtors’ on the balance sheet.
To some extent, credit sales are good for a company
since it can attract customers by selling them goods
today and providing them the flexibility to pay back
after some time. But a company’s rising credit sales are
a red flag, since they mean that the company is not
receiving cash for its goods or services. Worse, it may
also mean that the company is selling on credit just to
show a jump in its sales and profitability. Hence, it’s
important to dig deeper into a company’s reported
numbers and not take them at their face value.
Here is a list of companies with high debtors. The
sales of these companies are growing at a rate of 5 per
cent or more. Their debtors as a percentage of revenue
are greater than 30 per cent currently and are rising
consistently for the previous three years. WI
Yash Rohra yash@valueresearch

Buy today, pay tomorrow

Debtors as a % of revenue 3-year sales Mcap
Company name Sector 2015 2016 2017 CAGR (%) (` cr)
Indbank Merchant Banking Services Stock Broking 71 98 100 14.8 71
S Chand And Co Printing and Publishing 72 73 74 22.7 1,684
Inox Wind Electric Equipment 53 55 70 29.7 2,471
Uniply Industries Wood & Wood Products 20 43 63 24.0 650
COSYN IT - Software 32 47 57 31.2 57
Vama Industries IT - Software 30 38 55 38.3 142
NLC India Power Generation/Distribution 37 48 54 23.4 14,781
CL Educate Educational Institutions 32 43 54 5.8 545
Eon Electric Cable 34 37 53 11.0 98
Himachal Futuristic Communications Telecommunication - Equipment 14 43 50 5.6 1,964
EPC Industries Industrial Equipments 34 37 46 4.9 495
Gujarat Fluorochemicals Chemicals 35 40 43 22.8 8,233
Agarwal Industrial Corporation Logistics 18 26 43 10.7 564
Mangalam Seeds Agriculture 12 20 40 26.7 112
Patels Airtemp (India) Industrial Equipments 20 28 37 26.7 91
Bombay Rayon Fashions Textile 30 32 36 9.2 3,919
GeeCee Ventures Real Estate 9 16 34 14.5 254
GNA Axles Auto Ancillary 29 32 34 10.5 564
CMI Cable 27 27 34 58.8 296
Orient Abrasives Refractories 19 28 33 8.0 343
Mauria Udyog Industrial Equipments 24 31 33 17.2 78
J Kumar Infraproject Construction 15 21 32 9.8 1,409
Salzer Electronics Cable 27 28 32 16.2 278
Oriental Veneer Products Wood & Wood Products 23 27 30 10.9 172
Market cap as on August 14, 2017. Other data as of March end.

18 Wealth Insight September 2017

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