RE:RE:RE:RE:RE:Time the market, follow trend and trade this sector only. True there is more to investing than understanding the balance sheet. But this is the only document that will give you proper insight into the health of the company and the information that an investor may need to make an informed decision. Certain figures and trends in the BS will tell you a lot about the true health of the company and ignoring them can be disastrous for your investments. Look at the companies that went bankrupt if you go back and look at their past balance sheets you will see that there were always clear warning signs there. BS will tell you most of the story if you know how to interpret figures.
Under all the management hype and positive spins, you will see that they are actually buying Mickey Mouse money-losing overpriced companies and are also getting a gift of bosses with big salaries. These guys could not turn a profit before and now they will become a financial burden and continue to draw big salaries from the buying company. They will drain the resources of the company. When major companies take over other companies they find synergies and reduce cost, eliminate overpaid staff. Cut cost/ fat to the bone. Their objective is to increase both top and bottom lines with more emphasis on bottom lines. Increased earnings per share are the main focus. But this company seems to be becoming too top-heavy with unsustainable big salary bills.
The gross profit for the quarter was $5.6m and wages and salaries were $5.3m. Their entire gross profit just covers the salaries. How are they going to cover other expenses? Dilution is the only anti-investor-friendly option. . They are trying to expand at a lighting speed at all costs. It has become alarming that the profit margins of this company are so low that they can only cover the salaries. Just to break even they would need a massive increase in their margins and or revenues needs to multiply. They do not have financial muscle like Canopy where time is on their side and have huge loss sustaining capacity. VLNS has limitations to the size of losses they can take. It is a mid-size company trying to play the game of major players with strong financial backing. Increasing the probability of destroying old long-term shareholders.
The reality is that their margins are so small after acquisitions that they do not actually cover their salaries because the company got about 3 million government salary subsidies. This subsidy is not going to exist for very long and because of the inflation and shortage of workers, the general salaries will be going up further. You have to keep an eye on the cost of salaries of this company. Good management would have a plan to get rid of overpaid staff eliminate duplication of roles.
Now if you take out the government salary subsidy the financial losses would have been much worse. Loss from operations had $1.8m in tax recoveries also. They might not have further tax credits left. Based on the current results they are indicating that they will be burning cash for a long time, so buckle up till their financial situation improves or the hype in the sector is back. There are major structural issues in the industry and some of them are not in the control of this company.
Look at the quality of the assets of the company. Their intangible assets are $75m and then goodwill of $40m Total $115m, these are growing and much bigger than the total value of the property plant and equipment of $70m only. The quality of the balance sheet is deteriorating which will results in a write-off in the future. VLNS might be tumbling while re-inventing itself. Their historical tolling processing business is now toast and you could see that coming in the previous balance sheets.
Balance sheets paint a very clear picture of the challenges the company is facing and its strengths. It reflects management performance too. Institutional investors always look at the balance sheets.