This is a letter by a daughter to her Business Tycoon father explaining why she was turning down her marriage engagement with the son of a top-shot business house.
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Dearest Papa,
This may come as a rude shock to you but I have decided to cancel my engagement with Kartik.
Papa, this is the question of my future.
You had said that I shall have a great future with this family, but when I had a closer look at their Balance Sheet I was shocked to find their true financial status and moral ethics.
I am sharing below my findings from the balance sheet so that you can understand what I am saying!
- short term receivables are very low
- too much of credit is being extended to the supply chain
- NPAs are high
- advance credit retail has been shown to jack up sales figures
- too less cash in hand (how are they managing the payments to suppliers etc.? Employees, Suppliers etc. must be highly dissatisfied!)
- in last year's balance sheet they had too much of cash-in-hand. This shows that either they had no idea of how to deploy the excess cash or they had no plans! All that excessive cash has evaporated from balance sheet this year without any meaningful asset creation this year!
- they are carrying too much of inventory. Their inventory turnover (=sale/avg.inventory) is too low. I am surprised at the inefficiency! They must be paying a lot of interest on this inventory pile! How can they be managing their lives efficiently?
- they have calculated their fixed assets (land holdings, plant, machinery etc.) at market value instead of at cost. they have given highly inflated figures for these not-meant-to-be-sold-till-distress assets. why have they done that? obviously, their actual financial position is not as healthy as they have made out to be - by inflating these non-current assets. Had they used genuine 'at cost' figures for these assets, their net assets would have nose-dived even further!
- they have huge current liabilities. how come they didn't manage their debt?
- their current liabilities are almost equal to their cash flows! As exposed by their quick ratio i.e. (current assets without inventory)/current liabilities, which is less than 1, how are they going to save their company from debt trap? they are likely to default soon on their interest payments. Even if they go for debt restructuring, this will result in decline in their credit-worthiness which will further make debt hard and costlier to come.
- the most shocking thing is that they have almost zero net assets! Their liabilities are almost equal to their assets!
- surprisingly, they have no intellectual property by way of any good brand, patents, trademarks, copyrights, technology, processes, etc.. They have no core strength!
- I have a strong feeling that they have a considerable hidden off-balancesheet debt due to some large capital expenditures
In light of my above findings from their balance sheet, I am really shaken at even the thought of marrying into that family of hollow financials and weak ethics!
I hope my darling papa understands me and allows me to snap this relationship.
Your loving daughter
Chiki
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