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Skystar Bio Pharmaceutical Company Message Board

  • shaw2.kind shaw2.kind Nov 15, 2010 10:02 PM Flag

    Quality of Earning Is Awful-Cashless Earning

    The following applies to YONG and TSTC as well:

    For me the key metric, the one that doesn't lie is 'cash flow from operating activities' and consequently 'cash flow per share from operating activites' because the numbers reconciles balance sheet with income statement.

    Per 10Q this evening SKBI was unable to generate one cent in 'cash flow from operating activities'; it shows 2.5 million loss, twenty fold increase in deficit from last year; or a LOSS OF .35 CENTS PER SHARE IN 'CASH FLOW FROM OPERATING ACTIVITIES'. This is the horrible thing about the overwhelming majority of China stocks: Cashless Earnings. (CAGC, FUQI, RINO, TXIC now PK, SPU, NEP, XING, ONP, YONG which just reported has the same problem, etc. etc.

    The trouble is: a) market refuse to give proper multiple because of low earning quality; b) you can't keep manufacturing earnings with receivables skyrocketing and yet keep going for too long. Ultimately, it catches with the company's fundamentals.

    A COUPLE OF OTHER NEGATIVES:

    (1) Inventories have gone up Year over Year by 265 percent, yet sales are up only fifty percent. This means, huge write off are coming further widening loss in 'cash flow from operating activities'.

    (2) The numbers uncomfortably don't add up: about forty percent of the tangible book value is 'paper' related PREPAYMENT which can hide a lot of things. But the actual tangible net worth that generates business is so meager. Muddy Waters recently discerned the same regarding RINO. I am not saying he situation is analogues, just that numbers do not add up.


    The stock is up today because people don't look under the hood and trade on headline number. Long term, I can't trust a company that can't generate a single penny of 'cas from operating activities' on huge profit.

    Don't own, am not short but have seen that in these situation PPS ultimately go down hard one -two quarters in the future. It is unsustainable long term

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    • Frog belly why would a cash outlay for raw materials be a flag?

      Especially for a company that is experiencing hyper growth?

    • not a very intelligent response geofox. getting emotional will not get you credibility. argue your point intelligently.

    • why u bashing Shawn for making his point just because you are BLINDLY long this company.
      The lack of cashflow is an interesting point that he makes. This is a good company but theres just some issues that needs to be addressed..
      I sold last night at $10 cuz i knew it would get killed today..

      Was there a Conference call??

    • I don't pretend to be brilliant, unlike you, shameless old basher...

    • Yes swine....

    • Ignore him, its Pearls before Swine.

    • gefox, instead of providing a modicum of intellectual depth and provide a rebuttal for the concrens I raised, you attack me for my age. Brilliant, I say. It sure doesn't say much about your investing prowess, nor about your sense of decency (or lack thereof).

    • I agree. I thought the inventory and recievables increase was extreme. I am more a proponent of cash flow than reported earnings. A good book is " Creative cash flow reporting " by Charles Mulford & Eugene Comiskey.

      • 1 Reply to finance502
      • So am I. Chinese in particular engage in all kinds of accounting shasnanigans: "trade account receivables,' 'receivables,' 'related parties receivables,' advances to suppliers', 'prepayment this, prepayment that' in the current asset categories. And than stuff like 'construction in progress', 'long-term prepayment' and oh yes, 'long-term receivable.' Thus, these Chinese companies keep reporting off the charts sky high earnings and earning per share but you wonder why they can't generate a penny of 'cash flow from operations' Any common sense will tell you whether you should dig deeper into the revenue recognition accounting of such a firm

        My goodness, some China companies make 'advance to suppliers', meaning friends and relatives, who than return it back to the company in 'sales' but money is not collected, yet it is recorded as 'revenue', thus earnings go up, receivables go up and no wonder that 'cash flow from operations' still in the ditch.

    • Advice for such moaners as you - sell on good news.I am long on SKBI and YONG and won't do that, because it's just the beginning of a nice breakout.

    • "Per 10Q this evening SKBI was unable to generate one cent in 'cash flow from operating activities'; it shows 2.5 million loss, twenty fold increase in deficit from last year; or a LOSS OF .35 CENTS PER SHARE IN 'CASH FLOW FROM OPERATING ACTIVITIES'. This is the horrible thing about the overwhelming majority of China stocks: Cashless Earnings. (CAGC, FUQI, RINO, TXIC now PK, SPU, NEP, XING, ONP, YONG which just reported has the same problem, etc. etc."

      Your inclusion of YONG with the likes of CAGC, FUQI, RINO, TXIC, etc., is pretty ridiculous! Why don't you give the folks here an opportunity to read YONG's earning release yesterday and let them judge for themselves?

      BTW, re. their cash flow problem, here's an excerpt from YONG's earnings yesterday:

      "Operating cash flow reached almost breakeven at ($0.2) million, an improvement from ($1.1) million in the prior year period"

      "We have a positive operating cash flow trend. We were very close to operating cash flow breakeven in the third quarter and expect to become operating cash flow positive in the fourth quarter. We have also significantly enhanced our borrowing power by securing lines of credit from commercial banks to help manage our working capital needs."

      Oh, and for anyone interested in reading YONG's full earnings report- -a stellar one, I might add- -I attached the link.

      http://finance.yahoo.com/news/Yongye-International-prnews-218690026.html?x=0&.v=1

      Every board has a basher/s. It's obvious you have one here. For the purpose of keeping your board clean and having a healthy discussion, I would suggest putting the worthless ones on 'ignore'.

      Good luck re. SKBI.........

      • 1 Reply to nypd2726
      • Sorry, I am not bashing. As per 10Q of last night, the hard fact is that the 'cash flow from operating activities' within the last 9 months was 2.5 million deficit and yet earnings were 12 million plus during that same period. Now true they are saying that the company is at breakeven but that is the problem, isn't it? For a typical company in this line of business you world expect at least'operating cash flow per share' of at least one third of earnings per share. This speaks to the low or questionable quality of earnings.

        Also, is it normal to have forty percent of a company's net worth in 'prepayment'? The fact is that 'prepayment' is a paper net worth and you can hide alot with it. But once you subtract that and current liabilities, you are left with very little hard assets and than the question is: Can a company generate this kind of sales and sales growth on practically little or no tangible hard assets?

        Am not bashing. But have been burned by China companies shananigans. If you are trader buy and enjoy the ride. But if investing, I urge you to look hard and see what does not add up. I am sure the people who bought the high flying RINO at 20 or FUQI at 20-30 and paid a huge price will agree with me: Don't justify just do a hard DD.

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