Here's How People Get Fooled Into Buying Bankrupt Companies...

Authored by Simon Black via SovereignMan.com,

In 1906, American entrepreneur William T. Grant opened his very first “W.T. Grant Co 25 cent store” in a small town outside of Boston.

The store became popular and fairly profitable. So Grant opened another. And another.

Three decades later, Grant’s retail empire was generating $100 million in sales (an enormous sum back then). And by the time of Grant’s death in 1972, there were over 1,000 stores bearing his name.

Investors loved W.T. Grant Company stock for its reliable profits and high dividends.

Many of our subscribers may remember W.T. Grant. The chain was among the largest in the US at its peak.

And then something completely unexpected happened…

In 1976, W.T. Grant Company declared bankruptcy.

At the time, it was the second biggest bankruptcy in US history. And, like the downfall of Lehman Brothers and other big Wall Street institutions at the onset of the 2008 financial crisis, it was a shock to the world.

How could a company as big and profitable as W.T. Grant Co. go bust?

In the autopsy that followed the bankruptcy, accountants found that while the company was generating substantial PROFIT, it was not generating any CASH FLOW.

These two terms sound the same, but they’re dramatically different.

Profit, or more specifically net income, includes all sorts of bizarre accounting rules that don’t actually make sense in the real world.

Due to these rules, companies are often required to adjust revenue and expenses for things like “depreciation”, or “foreign exchange gains and losses”.

These are all merely accounting terms that don’t directly and immediately affect cash balances. But they can dramatically impact “profitability.”

Here’s one example from my own experience: a few years ago, the large agriculture company that I founded here in Chile purchased a farm.

We bought it for far below the property’s market value.

It was a great deal for the business. BUT… accounting rules required that our company record a PROFIT based on the difference between what we paid for the property and what it was worth.

This idiotic rule made it seem like we achieved a profit simply for buying a property.

This makes no sense. In the real world, we would only earn a profit by SELLING the property for a higher amount than we paid. You can’t profit before you sell something.

It’s rules like this that make profit an unreliable metric.

CASH FLOW is much more accurate.

Specifically, OPERATING CASH FLOW tells us how much money a company makes from its business.

It strips out all the silly rules and focuses purely on how much cash a business generates from its operations.

Then there’s FREE CASH FLOW, which is the amount of money left over for investors AFTER a company makes all of the necessary investments it requires for future growth.

Cash flow is what counts. If a company has negative cash flow, it will eventually go under.

Profit can be misleading. And that’s what happened to W.T Grant Co. It was profitable but had negative cash flow.

Today there’s another famous business in similar circumstances– our old friend Netflix.

Quarter after quarter, Netflix reports a profit.

Just yesterday afternoon the company had its quarterly earnings call, posting a profit of $553 million. Not bad.

Yet when anyone dives just a little bit deeper into the numbers, Netflix’s cash flow is absolutely gruesome.

The company’s operating cash flow is negative. In other words, after stripping out all the unrealistic accounting nonsense, Netflix’s core business LOSES MONEY.

In fact Netflix’s operating cash flow has been negative FOR YEARS. And the amount of money its losing is increasing.

Netflix’s business has lost $1.3 billion so far through the first nine months of 2017. That’s 52% worse than the $916 million operating cash flow deficit they suffered in the first nine months of 2016, and nearly three times worse than the $504 million operating cash flow deficit during the first nine months of 2015.

Throughout this period, the number of Netflix subscribers has steadily grown, now well in excess of 100 million.

And every time Netflix reports a big surge in subscribers, the stock price soars.

This is truly bizarre. Just look at the cash flow numbers: as the number of Netflix subscribers has grown over the years, the company losses have grown even more.

It reminds me of that old saying from the 1990s dot-com bubble– “We lose money on every sale, but make up for it in volume.”

But it gets worse.

The company’s negative operating cash flow doesn’t include the billions of dollars that it spends on content.

And on its quarterly earnings call yesterday, executives announced they will spend a whopping $8 billion on original content next year.

That’s $8 billion that they don’t have. And don’t forget the $1.4 billion operating cash flow deficit.

Where are they possibly going to find this money? Simple. Debt. Netflix will pile on more and more debt despite racking up enormous cash flow deficits.

Now, to be fair, it’s not unusual for a business to lose money for a period of time as part of a longer-term plan to generate strong cash flow.

But just look at this industry: it seems like EVERYONE is diving in to this original content game.

Apple. Facebook. Amazon. CBS. Disney. Google. Sony. Time Warner. Hulu. Each of these organizations has developed a streaming service with original content.

And some of them (especially Google and Facebook) have an endless war chest thanks to their cash-gushing core businesses.

Google’s parent company (Alphabet) reported free cash flow of $11.6 billion in the second quarter alone. So it could easily outspend Netflix and still have billions of dollars left over.

All of this competition is going to be great for consumers; these companies are collectively spending tens of billions of dollars to entertain us. And they’re going to lose money doing it.

But for investors this is sheer madness. Don’t be the sucker paying for other people’s entertainment.

And to continue learning how to safely grow your wealth, I encourage you to download our free Perfect Plan B Guide.

WORLD’S LARGEST OIL COMPANIES: Deep Trouble As Profits Vaporize While Debts Skyrocket

By the SRSrocco Report,

The world"s largest oil companies are in serious trouble as their balance sheets deteriorate from higher costs, falling profits and skyrocketing debt.  The glory days of the highly profitable global oil companies have come to an end.  All that remains now is a mere shadow of the once mighty oil industry that will be forced to continue cannibalizing itself to produce the last bit of valuable oil.

I realize my extremely unfavorable opinion of the world"s oil industry runs counter to many mainstream energy analysts, however, their belief that business, as usual, will continue for decades, is entirely unfounded.  Why?  Because, they do not understand the ramifications of the Falling EROI - Energy Returned On Invested, and its impact on the global economy.

For example, Chevron was able to make considerable profits in 1997 when the oil price was $19 a barrel.  However, the company suffered a loss in 2016 when the price was more than double at $44 last year.  And, it"s even worse than that if we compare the company"s profit to total revenues.  Chevron enjoyed a $3.2 billion net income profit on revenues of $42 billion in 1997 versus a $497 million loss on total sales of $114 billion in 2016.  Even though Chevron"s revenues nearly tripled in twenty years, its profit was decimated by the falling EROI.

Unfortunately, energy analysts, who are clueless to the amount of destruction taking place in the U.S. and global oil industry by the falling EROI, continue to mislead a public that is totally unprepared for what is coming.  To provide a more realistic view of the disintegrating energy industry, I will provide data from seven of the largest oil companies in the world.

The World"s Major Oil Companies Debt Explode Since The 2008 Financial Crisis

To save the world from falling into total collapse during the 2008 financial crisis, the Fed and Central Banks embarked on the most massive money printing scheme in history.  One side-effect of the massive money printing (and the purchasing of assets) by the central banks, was that it pushed the price of oil to a record $100+ a barrel for more than three years.  While the large oil companies reported handsome profits due to the high oil price, many of them spent a great deal of capital to produce this oil.

For instance, the seven top global oil companies that I focused on made a combined $213 billion in cash from operations in 2013. However, they also forked out $230 billion in capital expenditures.  Thus, the net free cash flow from these major oil companies was a negative $17 billion... and that doesn"t include the $44 billion they paid in dividends to their shareholders in 2013.  Even though the price of oil was $109 in 2013; these seven oil companies added $45 billion to their long-term debt:

As we can see, the total amount of long-term debt in the group (Petrobras, Shell, BP, Total, Chevron, Exxon & Statoil) increased from $227 billion in 2012 to $272 billion in 2013.  Isn"t that ironic that the debt ($45 billion) rose nearly the same amount as the group"s dividend payouts ($44 billion)?  Of course, we can"t forget about the negative $17 billion in free cash flow in 2013, but here we see evidence that the top seven global oil companies were borrowing money even in 2013, at $109 a barrel oil, to pay their dividends.

Since the 2008 global economic and financial crisis, the top seven oil companies have seen their total combined debt explode four times, from $96 billion to $379 billion currently.  You would think with these energy companies enjoying a $100+ oil price for more than three years; they would be lowering their debt, not increasing it.  Regrettably, the cost for companies to replace reserves, produce oil and share profits with shareholders was more than the $110 oil price.

There lies the rub....

One of the disadvantages of skyrocketing debt is the rising amount of interest the company has to pay to service that debt.  If we look at the chart above, Brazil"s Petrobras is the clear winner in the group by adding the most debt.  Petrobras"s debt surged from $21 billion in 2008 to $109 billion last year.  As Petrobras added debt, it also had to pay out more to service that debt.  In just eight years, the annual interest amount Petrobras paid to service its debt increased from $793 million in 2008 to $6 billion last year.  Sadly, Petrobras"s rising interest payment has caused another nasty side-effect which cut dividend payouts to its shareholders to ZERO for the past two years.

Petrobras Annual Dividend Payments:

2008 = $4.7 billion

2009 = $7.7 billion

2010 = $5.4 billion

2011 = $6.4 billion

2012 = $3.3 billion

2013 = $2.6 billion

2014 = $3.9 billion

2015 = ZERO

2016 = ZERO

You see, this is a perfect example of how the Falling EROI guts an oil company from the inside out.  The sad irony of the situation at Petrobras is this:

If you are a shareholder, you"re screwed, and if you invested funds (in company bonds, etc.) to receive a higher interest payment, you"re also screwed because you will never get back your initial investment.  So, investors are screwed either way.  This is what happens during the final stage of collapsing oil industry.

Another negative consequence of the Falling EROI on these major oil companies" financial statements is the decline in profits as the cost to produce oil rises more than the economic price the market can afford.

Major Oil Companies" Profits Vaporize... Even At Higher Oil Prices

To be able to understand just how bad the financial situation has become at the world"s largest oil companies, we need to go back in time and compare the industry"s profitability versus the oil price.  To find a year when the oil price was about the same as it was in 2016, we have to return to 2004, when the average oil price was $38.26 versus $43.67 last year.  Yes, the oil price was lower in 2004 than in 2016, but I can assure you, these oil companies weren"t complaining.

In 2004, the combined net income of these seven oil companies was almost $100 billion..... $99.2 billion to be exact.  Every oil company in the group made a nice profit in 2004 on a $38 oil price.  However, last year, the net profits in the group plunged to only $10.5 billion, even at a higher $43 oil price:

Even with a $5 increase in the price of oil last year compared to 2004, these oil companies combined net income profit fell nearly 90%.  How about them apples.  Of the seven companies listed in the chart above, only four made profits last year, while three lost money.  Exxon and Total enjoyed the highest profits in the group, while Petrobras and Statoil suffered the largest losses:

Furthermore, the financial situation is in much worse shape because "net income" accounting does not factor in the companies" capital expenditures or dividend payouts.  Regardless, the world"s top oil companies" profitability has vaporized even at a higher oil price.

Now, another metric that provides us with more disturbing evidence of the Falling EROI in the oil industry is the collapse of  the "Return On Capital Employed."  Basically, the Return On Capital Employed is just dividing the company"s earnings (before taxes and interest) by its total assets minus current liabilities.  In 2004, the seven companies listed above posted between 20-40% Return On Capital Employed.  However, this fell precipitously over the next decade and are now registering in the low single digits:

In 2004, we can see that BP had the lowest Return On Capital Employed of 19.68% in the group, while Statoil had the highest at 46.20%.  If we throw out the highest and lowest figures, the average for the group was 29%.  Now, compare that to the average of 2.4% for the group in 2016, and that does not including BP and Chevron"s negative returns (shown in Dark Blue & Orange).

NOTE:  I failed to include the Statoil graph line (Magenta)  when I made the chart, but I added the figures afterward.  For Statoil to experience a Return On Capital Employed decline from 46.2% in 2004 to less than 1% in 2016, suggests something is seriously wrong.

We must remember, the high Return On Capital Employed by the group in 2004, was based on a $38 price of oil, while the low single-digit returns by the oil companies in 2016 were derived from a higher price of $43.  Unfortunately, the world"s largest oil companies are no longer able to enjoy high returns on a low oil price.  This is bad news because the market can"t afford a high oil price unless the Fed and Central Banks come back in with an even larger amount of QE (Quantitative Easing) money printing.

I have one more chart that shows just how bad the Falling EROI is destroying the world"s top oil companies.  In 2004, these seven oil companies enjoyed a combined net Free Cash Flow minus dividends of a positive $34 billion versus a negative $39.1 billion in 2016:

Let me explain these figures.  After these oil companies paid their capital expenditures and dividends to shareholders in 2004, they had a net $34 billion left over.  However, last year these companies were in the HOLE for $39.1 billion after paying capital expenditures and dividends.  Thus, many of them had to borrow money just to pay dividends.

To understand how big of a change has taken place at the oil companies since 2004, here are the figures below:

Top 7 Major Oil Companies Free Cash Flow Figures

2004 Cash From Operations = ............$139.6 billion

2004 Capital Expenditures = .................$67.7 billion

2004 Free Cash Flow = ...........................$71.9 billion

2004 Shareholder Dividends = ..............$37.9 billion

2004 Free Cash Flow - Dividends = $34 billion

2016 Cash From Operations = .................$118.5 billion

2016 Capital Expenditures = ....................$117.5 billion

2016 Free Cash Flow = ................................$1.0 billion

2016 Shareholder Dividends = ...................$40.1 billion

2016 Free Cash Flow - Dividends = -$39.1 billion

Here we can see that the top seven global oil companies made more in cash from operations in 2004 ($139.6 billion) compared to 2016 ($118.5 billion).   That extra $21 billion in operating cash in 2004 versus 2016 was realized even at a lower oil price.  However, what has really hurt the group"s Free Cash Flow, is the much higher capital expenditures of $117.5 billion in 2016 compared to the $67.7 billion in 2004.  You will notice that the net combined dividends didn"t increase that much in the two periods... only by $3 billion.

So, the lower cash from operations and the higher capital expenditures have taken a BIG HIT on the balance sheets of these oil companies.  This is precisely why the long-term debt is skyrocketing, especially over the past three years as the oil price fell below $100 in 2014.  To continue making their shareholders happy, many of these companies are borrowing money to pay dividends.  Unfortunately, going further into debt to pay shareholders is not a prudent long-term business model.

The world"s major oil companies will continue to struggle with the oil price in the $50 range.  While some analysts forecast that higher oil prices are on the horizon, I disagree.  Yes, it"s true that oil prices may spike higher for a while, but the trend will be lower as the U.S. and global economies start to contract.  As oil prices fall to $40 and below, oil companies will begin to cut capital expenditures even further.  Thus, the cycle of lower prices and the continued gutting of the global oil industry will move into high gear.

There is one option that might provide these oil companies with a buffer... and that is a new even larger Fed and Central Bank money printing scheme which would result in severe inflation and possibly hyperinflation.  But, that won"t be a long-term solution, instead just another lousy band-aid in a series of band-aids that have only postponed the inevitable.

The coming bankruptcy of the once mighty global oil industry will be the death-knell of the world economy.  Without oil, the global economy grinds to a halt.  Of course, this will not occur overnight.  It will take time.  However, the evidence shows that a considerable wound has already taken place in an industry that has provided the world with much-needed oil for more than a century.

Lastly, without trying to be a broken record, the peak and decline of global oil production will destroy the value of most STOCKS, BONDS and REAL ESTATE.  If you have placed most of your bests in one of these assets, you have my sympathies.

Check back for new articles and updates at the SRSrocco Report.

Sustainability Or Growth? E&Ps Face A Difficult Decision

Authored by Oil & Gas 360 via OilPrice.com,

Only 16 E&Ps are expected to grow production and keep spending within cash flow

U.S. unconventional E&Ps often find themselves in a difficult position in the current environment. The environment has long been “grow or die,” with high emphasis placed on companies growing production. Firms that have little growth prospects generally trade at significantly lower multiples.

On the other hand, a different group of investors have much different priorities.

Many investors have begun to place a premium on operational sustainability instead of growth. These investors prefer that companies are able to sustain operations and generate free cash flow, rather than spend beyond their means to keep growing.

Companies, then, are often forced to decide. Is it worthwhile to spend beyond cash flow to grow? The ideal company is able to do both, but most must choose one or the other. A tough downturn and volatile commodities prices have made E&Ps and investors cautious.

Out of 119 E&P companies, 72 are predicted to have average 2017 production exceed Q4 2016 production. Significantly fewer, only 27, are expected to have positive free cash flow in 2017. These two are not mutually exclusive, as a total of 16 companies have both positive free cash flow and production growth.

These 119 companies are plotted below.

How to read the graphs

Free cash flow is presented relative to market cap, to ensure operations are comparable and adjust for company size. Production growth, as previously mentioned, compares expected overall 2017 production with Q4 2016 production levels. Because debt is also a major means for companies to fund operations, each company’s debt to market cap is illustrated as bubble size, with higher debt giving a larger bubble. Companies are identified by ticker on each chart.

Several outliers are not included in the charts, to preserve scale. Micro Cap Blackbird Energy (ticker: BBI) predicts production growth of 2204 percent in 2017, and has zero debt. It will accomplish this with high spending, as its negative free cash flow balance represents 26 percent of its market cap. Rex Energy (ticker; REXX) also is not plotted, as its negative free cash flow balance is 330 percent of its market cap. Micro cap TransGlobe Energy (ticker: TGA), which predicts 505 percent production growth, and mid-cap Paramount Resources (ticker: POU), which expects 282 percent production growth, are also not plotted.

Large cap companies, defined as those with market capitalization above $10 billion, are all relatively similar. Most expect modest production gains of less than 20 percent, with only Canadian Natural Resources (ticker: CNQ) expecting larger gains.

(Click to enlarge)

Source: EnerCom Analytics

Mid-cap companies, those with market capitalizations between $10 billion and $1.75 billion, are less likely to spend within cash flow. Only five companies will generate positive free cash flow this year. On the other hand, almost every company will see production grow, with some growing by more than 50 percent in one year.

(Click to enlarge)

Source: EnerCom Analytics

Small cap companies, with market capitalizations between $1.75 billion and $350 million, are more variable. Nine out of twenty-nine will spend within cash flow, and nine will not increase production in 2017.

(Click to enlarge)

Source: EnerCom Analytics

Micro cap companies, with market capitalizations below $350 million, generally do not spend within cash flow, instead prioritizing growth. Only one company, Pine Cliff Energy (ticker: PNE) is predicted to have positive free cash flow in 2017. On the other hand, almost all small cap companies are expected to grow production.

(Click to enlarge)

Source: EnerCom Analytics

16 companies will do both:

- Canadian Natural Resources (ticker: CNQ)
- Continental Resources (ticker: CLR)
- Cabot Oil & Gas (ticker: COG)
- Devon Energy (ticker: DVN)
- EOG Resources (ticker: EOG)
- Granite Oil (ticker: GXO)
- Pine Cliff Energy (ticker: PNE)
- Whitecap Resources (ticker: WCP)
- Crescent Point Energy (ticker: CPG)
- Vermilion Energy (ticker: VET)
- Enerplus Corp (ticker: ERF)
- Spartan Energy (ticker: SPE)
- TORC Oil and Gas Ltd (ticker: TOG)
- Bonavista Energy (ticker: BNP)
- Bonterra Energy (ticker: BNE)
- W&T Offshore (ticker: WTI)

Chinese Corporate Financials Continue Disturbing Trend Of Deterioration

Authored by Bryce Coward via Knowledge Leaders Capital blog,

Highlighting the deteriorating trend in Chinese corporate financials has been an annual feature our of this blog. This year, instead of looking at just the CSI 300 constituents, we chose to broaden our universe by using the FTSE All A Share Index, an index of about 2000 Chinese A shares. This should give us the most accurate read on the state of corporate China.

For at least the last decade Chinese corporations have levered up, both through debt and working capital, in an attempt to keep the music playing and without regard to stability or profitability. As we will see, 2016 was no different. As an aside, all of the data in this post show aggregated (summed up) metrics for all non-financial companies. For example, sales growth numbers show the sum total of 2016 non-financial constituent sales relative to the sum total of 2015 non-financial constituent sales. Aggregating the data in this way gives us a good top down view without having to control for outlier companies that may be small and irrelevant.

Starting with the balance sheet, one constant characteristic of Chinese corporate behavior has been their willingness to lever up. There are a number of ways to measure leverage, but one of our favorites is net debt as a percent of equity. From 2005-2016 net debt as a percent of equity increased 126%. From 2015-2016 along it increased by 13% to 143%, the highest on record. Meanwhile debt as a percent of capital ticked up again to 63% in 2016 – also the highest reading on record – while cash as a percent of total capital fell to its lowest ever reading of 9%. Luckily, financial leverage (assets relative to equity) remained constant at an egregiously high 6.9x.

Moving on to some ratios of working capital metrics as a percent of sales, we can see that 2016 was just a continuation of an alarming decade-long trend of Chinese companies gutting corporate efficiency to finance sales. From 2005-2016 accounts receivable as a percent of sales has increased 173%, accounts payable as a percent of sales has increased 73% and inventory as a percent of sales has increased 86%. All three metrics increased to an all-time high in 2016.

Building up one’s working capital could be a strategy to manage exploding top line growth, but unfortunately that is not the case for Chinese companies. Sales and net income haven’t grown since 2014 and net income actually contracted in 2016. Cash flow from operations also fell 18% for the largest year-on-year contraction since at least 2006. Plunging cash flow is an indication that the earnings decline of 1% could be painting too rosy a picture.

This brings us to something we like to call Chinese channel stuffing – or the tendency of corporate China to stuff the supply chain with accounts receivable and accounts payable so as to keep sales/sales growth at the desired level. Since 2012 both current liabilities and current assets have outpaced sales growth by between 2%-10% annually. In 2016 both metrics outpaced sales growth by 6%. This is to say, in order for corporate China in aggregate to have generated flat sales in 2016, they needed to grow working capital by 6%. In order for corporate China to have generated flat sales for two consecutive years they needed to grow working capital by a cumulative 16%.

The good thing is that, if you can believe the earnings and cash flow numbers, margins have remained relatively healthy. Net profit margins have remained at the historical average of 8% while cash flow margins stood at a robust 27% in 2017.

But, flat margins and growing balance sheets make for deteriorating profitability stats. In 2016 ROE dropped to an all-time low of 9%, ROA dropped to 5% and ROIC dropped to an all-time low of 4%.

There unfortunately are not a lot of positive things to say about the trends in corporate China. Much of the above is of course driven by SOEs at the behest of the government, but that doesn’t make the trends look any better. No one knows what the tipping point is and how long this can continue, but it goes without saying that we’d like to see these firms align the growth of their balance sheets to the growth of their income statements as soon as possible.

A Problem Emerges With Europe's "Recovery": Companies Crippled By Soaring Payment Delays

With Mario Draghi praising the European economy in his quarterly speech at the European Parliament, albeit conceding that inflation is still too low for the ECB to remove its unprecedented monetary support, one would be left with the impression of a slow, steady European recovery, also explaining the recent record inflow into European stocks. Alas, as is often the case, the full story is just below the surface. And it is here that a big problem is emerging.

According to the 2017 European Payment Report compiled annually by Swedish debt collector Intrum Justitia AB, a growing number of small and medium-sized businesses in Europe have complained they face excessive delays in being paid for their work, with large parts of the sector seeking tougher laws to address the problem. First discussed by Bloomberg, the Justitia report reveals that 61% of the 10,468 small and medium-sized companies surveyed say they’ve been asked by counterparties to accept longer payment delays than they feel comfortable with. This is a staggering increase of over 30% in just one year: in 2016, that figure was 46%. 

The surge is non-payments is perplexing as it takes place at a time when Europe is said to be actively recovering, with GDP rising, unemployment sliding, PMI surveys at or near post-crisis highs, and confidence  at near record levels.  The development is also “a growing concern” according to Intrum Justitia’s Chief Executive Officer Mikael Ericson, who told Bloomberg “this clearly significantly affects both growth and investments in European companies.”

Even more surprising, in 2011 the EU adopted the "Late Payment Directive" and said Europe’s whole economy is “negatively affected by late payment” and that “for Europe’s valued SMEs, any disruption to cash flow can mean the difference between solvency and bankruptcy.”

As such, the survey suggests that - among other things - Europe isn’t living up to its goal of protecting smaller companies from the liquidity issues they face when payment doesn’t arrive. It also suggests that there has been a sharp decline in liquidity within the supply chain, usually a harbinger of recessionary economic conditions, and hardly the environment in which a central bank sees "recovery." Quit the opposite.

As Bloomberg adds, a large number of firms surveyed said they want tougher payment rules to combat what Intrum Justitia describes as a “deteriorating payment culture.” Some 40% of businesses would welcome new legislation while about 30% want new voluntary-based codes of conduct.

Going back to the Late Payment Directive, it explicitly advises enterprises to pay their invoices within 60 days “unless they expressly agree otherwise and provided it is not grossly unfair.” Public authorities have to pay for the goods and services they procure within 30 days (or in very exceptional circumstances, 60 days). But the public sector, especially in Greece, stands out for particularly slow payment of its bills.  The European public sector’s average payment time rose to 41 days in the 2017 survey, from 36 last year. In Greece, the average payment time for public authorities is 103 days while in Italy and Portugal, it’s 98 days. Ericson says those numbers “should be troubling news to European governments, as their own authorities hinder efforts to stimulate growth and job creation.”

But the most troubling finding of the survey is that low interest rates - the only policy crutch that has been somewhat effective in Europe in recent years, even if it meant the ECB"s balance sheet is now the largest in the world - have lost their effectiveness, and only 13% of firms surveyed said low borrowing costs have led to an increase in their investments, with 81% reporting no change.

Justitia’s CEO Ericson concludes that with 4 of 5 companies saying low rates aren’t encouraging more investment, "it’s now all about cash flows" and that “ensuring stable cash flows early on” is now “more important” than investing in growth.

There are two major concerns emerging from the survey findings: first, as Ericson"s data suggest, the flow of cash within Europe"s businesses is rapidly declining, leading to surging receivables and non-payments. Second, while low rates may no longer stimulate businesses, it is certain that rising rates will adversely impact them and further exacerbate this troubling trend, which unless remedied immediately may culminate with mass corporate defaults. Finally, small and medium businesses are the bedrock of any stable "developed" economy. If Europe"s SMEs are signaling a cash flow alarm, how is it possible to claim a European recovery is taking place?

Snap IPO Opens At $24 - Almost Three Times The Size Of Twitter

Having priced at $17, Snap Inc. opened for trading at $24, valuing the company over $34 billion - almost three times the size of Twitter, bigger than both HP and CBS, and almost as big as Ebay.

41% jump at the open from the IPO price and extending gains to $25..

Losses greater than revenues make for "hard math to work with" for investors, George Maris, portfolio manager at Janus Capital, says on Bloomberg Television.

At this valuation, Snap is almost three times the size of Twitter ($11.5bn)

Snap sold 200 million shares at $17 each for $3.4 billion, above the initial range of $14 to $16. It was oversubscribed by ten times, according to sources.

As The FT reports, John Colley, a professor at Warwick Business School, said the company faces significant challenges competing with Facebook and Google, makes substantial losses and is suffering from slowing growth. 

“Snap Inc is benefiting from institutions and individuals being awash with cash,” he said. “The top end valuation reflects high liquidity rather than a great prospect. There is far more cash than opportunities, which means pursuit of long odds risky options such as Snapchat.”

As a reminder for those who are buying SNAP with both hands and feet...

The company reported revenue of $404.5 million in 2016 and a loss of $514.6 million for 2016, compared with revenue of $57.7 million and a loss of $372.9 million a year earlier.

Snap said it had 158 million daily active users on average in the quarter ended in December, a 48% increase from the same quarter a year before.

If only the company had lost more money!!

Snapchat is expert at burning cash. Free cash flow was $678 million last year. THAT IS MORE THAN ITS REVENUE for the year.