Ricoh India's revenue rose over 6 fold from ₹257 Cr in 2010 to ₹1,638 Cr in 2015📈
Share price surged 30x from ₹30 to ₹1,000 in the same period📈
But a fraud was detected🔻 and share got delisted
However, checking CFO/EBITDA ratio could've saved you
A thread🧵👇
Share price surged 30x from ₹30 to ₹1,000 in the same period📈
But a fraud was detected🔻 and share got delisted
However, checking CFO/EBITDA ratio could've saved you
A thread🧵👇
[1] What is CFO/EBITDA Ratio?
CFO is Cash Flow from Operations
The limitation of EBITDA is that it has both cash & non-cash profits which might include profits due to aggressive revenue recognition policies
This ratio depicts %age of EBITDA that gets converted into cash
CFO is Cash Flow from Operations
The limitation of EBITDA is that it has both cash & non-cash profits which might include profits due to aggressive revenue recognition policies
This ratio depicts %age of EBITDA that gets converted into cash
![[1] What is CFO/EBITDA Ratio?
CFO is Cash Flow from Operations
The limitation of EBITDA is that it...](https://pbs.twimg.com/media/FqIqGvMaIAEAOmO.jpg)
[2] What does it signify?
🔶 Measures what %age of profits is being generated into cash
🔶 A poor ratio might mean that company is unable to realize cash from debtors
🔶 Poor ratio might also be indicative of longer than usual credit period for debtors
🔶 Measures what %age of profits is being generated into cash
🔶 A poor ratio might mean that company is unable to realize cash from debtors
🔶 Poor ratio might also be indicative of longer than usual credit period for debtors
![[2] What does it signify?
🔶 Measures what %age of profits is being generated into cash
🔶 A poor r...](https://pbs.twimg.com/media/FqIqW26acAQE3-K.png)
[3] When it is a red flag?🚩
🔶Profits are growing🚀 but the CFO/EBITDA ratio is deteriorating🔻
🔶 Industry facing headwinds but Co's profits are growing with a deteriorating ratio
🔶 Consistently reporting a ratio poorer than peers
Channel stuffing might be a reason👇
🔶Profits are growing🚀 but the CFO/EBITDA ratio is deteriorating🔻
🔶 Industry facing headwinds but Co's profits are growing with a deteriorating ratio
🔶 Consistently reporting a ratio poorer than peers
Channel stuffing might be a reason👇
[4] What is channel stuffing?
🔶Increasing sales artificially by offering incentives to customers
🔶Used to inflate sales & profit figures
🔶Generally, co does this before reporting period say, a quarter
Investors may check CFO/EBITDA ratio to identify possible channel stuffing
🔶Increasing sales artificially by offering incentives to customers
🔶Used to inflate sales & profit figures
🔶Generally, co does this before reporting period say, a quarter
Investors may check CFO/EBITDA ratio to identify possible channel stuffing
[5] What is correct level of CFO/EBITDA Ratio?
An ideal ratio cannot be defined, however it can be analyzed through:
🔶Historical comparison
🔶Peer comparison
🔶Analyzing changes in Working capital
🔶Industry practises
Let's see what it is for market leaders👇
An ideal ratio cannot be defined, however it can be analyzed through:
🔶Historical comparison
🔶Peer comparison
🔶Analyzing changes in Working capital
🔶Industry practises
Let's see what it is for market leaders👇
[6] What is the CFO/EBITDA Ratio for market leaders?
🔶Diversified: RIL - 86%
🔶IT: TCS - 68%
🔶FMCG: HUL - 69%
🔶Telecom: Airtel - 89%
🔶Industrial: L&T - 73%
🔶Cement: Ultratech - 76%
So ideally, CFO/EBITDA shall be at least between 60-70%
🔶Diversified: RIL - 86%
🔶IT: TCS - 68%
🔶FMCG: HUL - 69%
🔶Telecom: Airtel - 89%
🔶Industrial: L&T - 73%
🔶Cement: Ultratech - 76%
So ideally, CFO/EBITDA shall be at least between 60-70%
[7] What were CFO/EBITDA levels of Ricoh India?
Rev, EBITDA & CFO/EBITDA
2011-₹297 Cr, 29 Cr, -31%🚩
2012-₹432 Cr, 11 Cr, -573%🚩
2013-₹633 Cr, 23 Cr, -422%🚩
2014-₹1,049 Cr, 78 Cr, -76%🚩
2015-₹1,638 Cr, 161 Cr, -138%🚩
Share fell 80% from Jul'15 to Jul'16🤯
See img👇
Rev, EBITDA & CFO/EBITDA
2011-₹297 Cr, 29 Cr, -31%🚩
2012-₹432 Cr, 11 Cr, -573%🚩
2013-₹633 Cr, 23 Cr, -422%🚩
2014-₹1,049 Cr, 78 Cr, -76%🚩
2015-₹1,638 Cr, 161 Cr, -138%🚩
Share fell 80% from Jul'15 to Jul'16🤯
See img👇
![[7] What were CFO/EBITDA levels of Ricoh India?
Rev, EBITDA & CFO/EBITDA
2011-₹297 Cr, 29 Cr,...](https://pbs.twimg.com/media/FqIqmUBaUAAbtyb.jpg)
While news headlines often capture the revenue and profit growth, they hardly mention about a deteriorating CFO/EBITDA ratio
Checking this ratio could’ve saved thousands of crores of wealth of investors
So, will you check CFO/EBITDA Ratio going forward?
Checking this ratio could’ve saved thousands of crores of wealth of investors
So, will you check CFO/EBITDA Ratio going forward?
TL;DR
[1] What is CFO/EBITDA Ratio
[2] What does it signify
[3] When it's a red flag 🚩
[4] What is channel stuffing
[5] What is the correct level of CFO/EBITDA Ratio
[6] What is CFO/EBITDA for market leaders
[7] CFO/EBITDA of Ricoh India
[1] What is CFO/EBITDA Ratio
[2] What does it signify
[3] When it's a red flag 🚩
[4] What is channel stuffing
[5] What is the correct level of CFO/EBITDA Ratio
[6] What is CFO/EBITDA for market leaders
[7] CFO/EBITDA of Ricoh India
Disclaimer: bit.ly
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