Hot Features
Premium
Register to chat with like-minded investors on our interactive forums.
N Brown (LSE:BWNG) has a high level of debt (£365m) relative to its market capitalisation of £800m. I need reassurance that the company is not displaying signs of financial distress. I’ll use Joseph Piotroski’s nine variables to gain an overall impression of vulnerability.
Before that, it is worth repeating that N Brown has two sides, (1) it sells clothes and other goods, and (2) it allows its customers to pay over a period of a year or two, thus it acts as a financial institution.
It makes sense to see the £365m N Brown owes other financial institutions as being backed up by the £600m its customers owe, thus we have some reassurance that the daily inflow from customers will provide the means to cope with its debt burden.
Piotroski analysis
A newsletter posted on 5th May 2017 looked at the company’s Piotroski factors and concluded that “the overall score of five out of nine is not overwhelmingly comforting, but is sufficient for me to conclude that N Brown has a low probability of vulnerability to financial distress.”
Today I’ll add an analysis based on the half year report to 2nd September.
- Did it produce a net income before extraordinary/exceptional items?
Annual: Yes, a profit of £64.5m before extraordinary items. A Piotroski score of 1.
Half year: Yes, a profit £21m. A Piotroski score of 1 for the half year analysis.
2. Cash flow from operations?
Annual: Yes, cash flow from operations of £89m. Second point gained.
Half year: Yes, £35.3m. Another Piotroski point.
3. A positive change in return on assets employed in the business from the previous year?
Annual: A decline in ROA: No Piotroski point.
Half year: A decline compared with the same period the year before. No Piotroski point
4. Cash flow is greater than profit
Annual: This is the case for N Brown so another point is scored.
Half-year: Yes. One more point.
5. Has the firm’s long-term debt reduced relative to its average total assets?
Annual: In 2016/17 the figure is £355m/£949m……….
………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
