Essential Energy Services Ltd T.ESN

Inventory as a current asset

[sunadventurer]

I suspect the $32 million of inventory as a current asset is making people believe ESN is more undervalued than it is. Why do you think this as a current asset instead of as a long-term one?

When I think of current assets, I think of that which can be easily and quickly converted to cash. I don't think this "inventory" is nearly as valuable as actual cash or receivables, which skews things when we compare ESN against others because we see the vey large current assets without being more critical about just what is included there.

They are able to get away with that, but for our sake we really should exclude that in the current assets portion of the balance sheet.

What do you think?

[auburn2]

Basically the $32 million of inventory is going to be used to generate EBITDA that is less than that $32 million. At book value it may be worth $32 million, but it functions very differently than cash and receivables.

[Torontojay]

Your point is valid however If you compare using other metrics such as EV to sales, EV to ebitda, price to book, price to sales, net cash , we find that Essential Energy is cheaper on a relative basis.  

[sunadventurer]

TorontoJay, are you calculating EV using invenstory as part of "cash equivalents"? That will get you a different result vs if you put inventory in the long-term assets column, which is where I prefer to put it when doing my own personal assessments of this company. Inventory generally is considered a current asset because in a worst case scenario you should be able to sell it off for the

[Torontojay]

Enterprise value does not change depending on whether inventory is used as a current asset or long term asset. Their enterprise value is about 6-7 million less than current market cap as they are net cash by that amount.