Alan Brochstein

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Imclone? yes

On Mar 19 12:29 PM User 379270 wrote:

> Is the number associated with LLY AFTER their recent $6 B acquisition?

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

ok, thanks...


On Mar 18 12:08 PM BS Detector wrote:

> Alan Brochstein wrote:

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

While I am aware of your point, I am unsure how to incorporate it into my analysis. If you look at the balance sheet for WMT, you will find a massive AP ($29 billion). This goes into the Current Liabilities metric of course. So, WMT is "borrowing" from its vendors, and the cash that they show is owed to them.


On Mar 18 01:41 PM Joseph Sherman wrote:

> Great article. Would you take into account favorable trade credit
> terms that Wal-Mart uses with suppliers as a substitute for cash.
> For example, much of Wal-Mart's supplies give the firm several months
> to pay for goods, Wal-Mart makes a sale, in cash or credit card,
> and holds onto the cash for a month or two before paying the supplies.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Zoltan, your assessment is correct. I am aware of the limitations of this exercise, but I believe that it actually goes a long way towards rooting out companies with the illusion of high cash balances. As transitory as it might be, I believe that you will find by looking over quarters and quarters of the relationship for a given stock, one will find that it isn't transitory though it could theoretically be so.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Deferred revenue means that the company collects cash but hasn't booked the sale. In the future, it will have a sale, but no cash associated with it. Hence, a company can have "earnings" but not see its bank balance increase. The presence of a large amount of deferred revenue vs cash tells me that the cash won't go up in the future, al lthings equal (unless they grow deferred revenue). There is also always a remote risk that the customer cancels and wants their cash back. The point is that the cash is on the books but hasn't been run through the P&L yet.

On your second comment, that is precisely what I am saying. If current assets are to fund current liabilities and they aren't converted to cash as is expected, the cash on the balance sheet, all things equal, would have to be used to pay current liabilities.