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Since I gained a little knowledge on how "supplier financing" allows capital light businesses + potential for high growth for retailers/grocers/restaurant chains, working capital on the balance sheet became a very important criteria that I would consider when reviewing a company.
Of course, supplier financing needs to be in the ordinary course of business, ie. customer facing businesses where customers pay up upon exchange of services/products but the business has the normal 2-3months payment terms with their suppliers. But if you are the 800pound gorilla who serves unfair payment terms to your suppliers, only a matter of time a "Common Prosperity" Overlord comes in to right things.
It will be interesting to see how BYD's balance sheet evolves in the coming year.
BYD profit drop may be worrying sign of things to come
Back in 2023, BYD was taking an average of 275 days to pay suppliers, a period far exceeding global industry norms, data compiled by Bloomberg showed.
The company said in June that it would comply with new government rules to pay suppliers within 60 days, a big adjustment that would likely hit its working capital outflows, reducing any flexibility in a downturn.
It may also cause adjustments to other parts of its balance sheet down the line – a report by accounting consultancy GMT Research said that without supply chain financing, BYD’s true net debt would be closer to 323 billion yuan, compared to the 27.7 billion yuan officially on its books as at the end of June 2024.
https://www.businesstimes.com.sg/compani...hings-come
Of course, supplier financing needs to be in the ordinary course of business, ie. customer facing businesses where customers pay up upon exchange of services/products but the business has the normal 2-3months payment terms with their suppliers. But if you are the 800pound gorilla who serves unfair payment terms to your suppliers, only a matter of time a "Common Prosperity" Overlord comes in to right things.
It will be interesting to see how BYD's balance sheet evolves in the coming year.
BYD profit drop may be worrying sign of things to come
Back in 2023, BYD was taking an average of 275 days to pay suppliers, a period far exceeding global industry norms, data compiled by Bloomberg showed.
The company said in June that it would comply with new government rules to pay suppliers within 60 days, a big adjustment that would likely hit its working capital outflows, reducing any flexibility in a downturn.
It may also cause adjustments to other parts of its balance sheet down the line – a report by accounting consultancy GMT Research said that without supply chain financing, BYD’s true net debt would be closer to 323 billion yuan, compared to the 27.7 billion yuan officially on its books as at the end of June 2024.
https://www.businesstimes.com.sg/compani...hings-come
I am not a certified financial advisor and so nothing of what I say should be construed as financial advice. Please consult a certified financial advisor for advice instead.