05 – Current temptation, future frustration

The fifth part of Series “Current temptation, future frustration“. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth.

I am starting this series with one of the company which is engaged in import and export agent, representative, contractor, selling agent, the broker on wholesale cash and carry basis for metals, minerals, iron and steel products, pipes, household items, general merchandise etc, has a 52 weeks low price of Rs.4.60 and LTP is Rs.31.65. This company has rewarded ~6.88x of return in a year.

Let’s start looking at the numbers.

When we look at the balance sheet then it seems that the company does not have any issue. It has reduced all debt, also it has huge investments.

Wonderful… The company still available below investment value after 6x price raise.

Let’s go further detail.

If we look at the income then the company does not have any income available. Also, the company is traded at ~530x Mcap/sales.

So this company does not have any business. Only investment of the company is good then this situation seems similar to Bluechip stamp investment made by Sage Mr.Buffett.

Let’s check the investment.

The company has ~30% of investment into liquid assets and all others into unquoted & related party investments. 

So the company keeps giving loans to related parties. 

The company does not have enough plan assets to fund gratuity.

This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

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