Within reason this looks a gem of a share all be it today's news of big drop in net cash due to aquisitions and falling revenue have hit the price,
However it still seems to be generating strong profits against market cap and still has some net cash on the balance sheet all be it reduced from six months back.
The current ratio is below Paul's red flag of 1,2 despite all the other stats looking good what am I missing here ?
Thanks Andy
Hi Andy,
It depends on what you mean by "what am I missing"? There's no doubt that the current ratio is low for Xchanging. In the results the total current assets are £248M and the total current liabilities are £201M - so the coverage is 123% while Paul, I believe, favours a ratio of 150% and above. However this can be relaxed for businesses such as supermarkets since they get paid in cash and so have little in the way of receivables; although it's not obvious to me that Xchanging warrants the same treatment. OTOH the ratio for the previous year was 112% so at least it's heading in the right direction.
Of more concern perhaps are the lack of tangible assets on the balance sheet; all you've got are £209M of goodwill and £123M of other intangible assets. Last year this was perhaps not a problem as there were no long-term liabilities to speak of (apart from a pension fund obligation) but this year they have £113M of new debt to think of and no assets to set against it.
So not the strongest balance sheet in the world but equally not the worst.
Cheers,
Damian
