How Investors Can Understand 1 Crucial Aspect Of Singapore Post Limited’s Business: Trade Receivables Management

Singapore Post Limited (SGX: S08) is a company that’s likely to be familiar to many in Singapore given that it runs the nation’s postal services. But there’s more to Singapore Post – it also provides eCommerce-related logistics services and has its own retail mall.

As a services provider, Singapore Post provides its services on both a cash and credit basis. The latter generates trade receivables, which simply represent revenues that have been recorded by a company but that are yet to be collected. As of 30 September 2016, Singapore Post had S$189 million in trade receivables.

Given the significant amount of money in trade receivables, it is important that the company handles this aspect of its business well.

In here, I want to assess how well Singapore Post has been managing its trade receivables over its last five fiscal years. To do so, I will study two things: (1) Changes in the company’s trade receivables value compared to changes in revenue; and (2) receivables days, which is also known as day sales outstanding.

Changes in trade receivables value

Ideally, changes in the value of a company’s trade receivables should not outpace that of its revenue. The value of a company’s trade receivables should also be low in relation to its revenue. Here’s a chart showing how Singapore Post’s trade receivables and revenue changed in its last five fiscal years:

Singapore Post revenue and trade receivables
Source: Singapore Post’s annual reports

Turns out, Singapore Post’s revenue and trade receivables have grown by 99% and 120%, respectively, from its FY2012 (fiscal year ended 31 March 2012) and FY2016.  In other words, the company’s trade receivables’ growth rate was 20% higher than that of its revenue.

That being said, Singapore Post’s trade receivables of around S$216 million in FY2016 is less than one-fifth of the company’s revenue of S$1.15 billion in the year.

Receivables days

Simply put, the receivables days figure indicates the average number of days that a company needs to collect cash from the sales it has made to its customers. Ideally, what we want to see is a stable or declining receivables days over the years.

The metric is calculated with the following formula:

(Trade Receivables) / (Revenue) x 365 days

The chart below plots Singapore Post’s receivables days from FY2012 to FY2016:

Singapore Post receivables days
Source: Singapore Post’s annual reports

We can see that Singapore Post’s receivables days has deteriorated – it has increased by 7 days, from 60 to 67 for the period under study.

A Foolish conclusion

In sum, we can observe that Singapore Post’s trade receivables management has weakened over its last fiscal years, given that its trade receivables has grown faster than revenue and that its receivables days has moved higher.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.