Syntax-Brillian: Confusing Analyst Statements

Daniel M. Gelbtuch, an analyst for CIBC World Markets, explained on Tuesday, November 14 why he believed Syntax-Brillian's stock has fallen over the past few trading days. He pointed to accounting and guidance problems as the culprit. However, some of his statements are rather confusing since the published article does not go into great depth to explain his comments.

He stated sales were recorded before payment was received and that booking revenue and earnings without cash has the appearance of fraud. Generally Accepted Accounting Principles [GAAP] uses an accruals basis of accounting. Under an accrual basis, the revenue recognition principle requires companies to record revenue when it is realized and earned and not when cash is received. That is why account receivables recognized during a quarter are generally considered revenue for that same quarter whether or not they have been collected. Even if the account receivables end up being uncollectible, a company will eventually write it off as a bad debt expense.

I do not see how an appearance of fraud can be drawn from those factors. However, Gelbutch might be saying that it appears to some that the receivables from China were fraudulent and there were no actual sales. Although that sounds highly unlikely since Syntax-Brillian's auditors, Ernest & Young, signed off on their audit. Gelbutch also said that the company extended lines of credit for up to 120 days for clients in Asia when no more than 40 should have been allowed. However, 120-day payment terms in China are not too uncommon. Manufacturers generally do no offer cash discounts to retailers in to encourage retailers to pay faster like in the US. Interest rates in China are very low making cash discounts less effective in speeding up collection.

Disclosure: Author has a long position in BRLC

Comments

[Arohan:]

Spot on. It is also a bit disappointing to see the financial media propagate that kind of comment without editorializing.

I believe BRLC presents a compelling value for ownership. Please see my articles at arohanvalue.blogspot.c... on BRLC and my rationale on why this may be the best value opportunity in the markets today

-Arohan

2007 Nov 15 12:34 PM

[RC Martin:]

Arohan,

Rest assured your lengthy post, a very accurate portrayal I might add, was NOT removed or edited by humans. I have been assured by the founder David they don't remove or edit posts by people. These incidents of disappearing posts and suddenly shrunk material is the work of electronic gremlins . Thankfully no other online site has been infected

2007 Nov 18 10:51 AM

[RC Martin:]

Amazing isn't it? One would expect an individual licensed by the SEC as a Certified Financial Analyst would possess at least fundamental understanding of accounting practices.

I believe that particular analyst had offered an opinion and recommendation for $15 earlier in the year predicated on his belief Brillian would be "the greatest short squeeze ever". Pretty thorough analysis wouldn't you agree? I can only imagine he awoke one day and said to himself, I see a large short position therefore as a CFA I call for $15 and the greatest short squeeze of all time. And to think these people actually are compensated for their work.

2007 Nov 15 01:17 PM