Monday, July 7, 2014

Blackberry's Current Asset Managment Bodes Well For the Future

A really good friend of mine used to love his Blackberry.  In fact, he called it is "crackerry" because he couldn't put it down.  This was about 3 years ago, and, over that time, we've seen the strong rise of Apple and Samsung as the emerging companies in the cell phone market.  But recent price action of BBRY has been positive, indicating the market is taking a second look at this company.

First, here's a long-term chart:

Here we clearly see the fall from investor grace, as the stock traded from the upper 70s to now a price around 10.  However, since mid-2012, the stock has been building a very strong technical base, consolidating losses.  In addition, it has rallied two times from the mid level of $5 and $6 share.

All of the charts below are from the last 5 quarters of financial information.

When looking at the company's financials, our first concern should be the liquidity position.  Blackberry is in a financially precarious position; it is trying to turn around in a fiercely competitive industry.  That means it needs to be able to cover its short term liabilities from its balance sheet.  As the chart below indicates, management is more than up to that task:

All of Blackberry's short term liquidity ratios are rising.  The current ratio is now slightly below 2.5 while the cash ratio is 1.52.  Also note the revised quick ratio where I assume receivables are sold at 75% of reported value is rising as well.  Current management has done very well in creating a highly liquid company in a very difficult environment.
Their defensive interval ratio is also in very good shape.

The DIR is a ratio of cash, cash equivalents and receivables to COGS, SGA and R&D expenditures.  What we want to make sure of is the company has enough cash on hand to cover expenses.  Notice that this number has been increasing.  The gold column is a ratio that excludes receivables.  The last two quarterly readings have been around 3, which tells us the company is extremely liquid.
Let's next turn to the receivables and inventory management.  Two things are common for a company in bad financial straights:
1.) To extend an increasing amount of credit to customers thereby closing sales that are on weaker financial footing. 
2.) To get caught with a large amount of inventory on their books as a result of declining sales. 
Blackberry has prevented both of those situations from developing:

Receivables as a percent of current assets have decreased from 35.63% to 17.10%, while inventory as a percent of current assets has decreased from 12.46% to 2.46%.
And finally, here is a chart of their operating - investing cash flows:
The point of this metric is to determine if the company is generating sufficient cash flows to cover their investments.  If this number is positive, the company begins to have more financing options, allowing it to choose between different methods of raising capital.  As the chart above shows, this number has been increasing consistently over the last five quarters, turning positive in the last quarter.
None of this takes away from the daunting task facing the company.  Quarterly gross revenue has dropped from a little over $3 billion to $966 million.  Book value has been cut by 2/3, falling from $9 billion to $3 billion.  And that's before we get into the difficulty of re-establishing a brand against two tech giants in Samsung and Apple.  However, the above data indicates that at least financially, the company is in good hands.