Trade Receivables

I believe I have mentioned several times on the issue of trade receivables issue in Megan Media. (see Megan: Part VIII )

I was shifting through some of my old market notes and issues on our listed shares, I came across this incident regarding Bintai Kinden.

Have a look inside the following quarterly earnings announcement. Click on the attached excel worksheet attached.

Quarterly rpt on consolidated results for the financial period ended 31/3/2005

Look into the balance sheet and look for the trade receivables amount. It showed Bintai Kinden had a huge trade receivables amounting to 373.841 million versus 215.411 million. Which is a good example of a company's having a build-up in their trade receivables.

Just for the record, that quarterly earnings was announced on 31st May 2005 and Bintai Kinden announced a net loss of 13.843 million for fiscal year 2005.

A couple of months later, 29th July 2005, Bintai Kinden made another announcement. See below:

Variance between audited and unaudited results for the financial year ended 31 March 2005

The Board of Directors of Bintai Kinden Corporation Berhad ("the Company") wishes to announce that the Group's audited loss after tax and minority interest for the financial year ended 31 March 2005 was RM19,149,000 as compared to the unaudited Interim Report for the same financial year announced on 31 May 2005 of RM13,843,000.

The deviation was mainly attributable to the trade receivables due from a sub-contractor to a subsidiary company of the Group whose sub-contractor's agreement with the subsidiary company was terminated during the financial year. Subsequently, the subsidiary company made an allowance for doubtful debts of RM6.5 million notwithstanding that the company is in the process of recovering the amount due from the sub-contractor.

The issue here is not on Bintai Kinden but the deviation in earnings attributable to the trade receivables, forcing an allowance for doubtful debts of 6.5 million to be made.

Point is .. when trade receivables keeps on increasing each single quarter, then it is utmost prudent that the investor be on the alert... for these trade receivables can easily be re-classified as doubtful debts! Which ultimately means the company did not earn as much money as it reported it did!

So when a company's earning report keeps showing an increase in trade receivables... then it's best we be on the alert!

Remember the old salesman saying again... a sale is not a sale until the money is pocketed!