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How Investors Can Understand 1 Crucial Aspect of Singapore Post Limited’s Business: Trade Payables 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.

During Singapore Post’s normal course of business, it would rack up trade payables, which can be found in the liabilities section of the company’s balance sheet. As of 30 September 2016, Singapore Post has $375.6 million in trade payables, which is over one-third of its total liabilities.

Given the significant amount of money involved, it is important that Singapore Post manages its trade payables well.

In here, I want to assess how well Singapore Post has been managing its trade payables by looking at two things: (1) Changes in trade payables as compared to revenue, and (2) days payable outstanding, which is also known as trade payables days.

Changes in trade payables

Ideally, trade payables should (1) change in tandem with revenues, and (2) be high in relation to revenues. Here’s a chart showing how Singapore Post’s trade payables and revenues have changed over the company’s last five fiscal years:

Singapore Post revenue and trade payables chart
Source: Singapore Post’s annual reports

Turns out, Singapore Post’s revenue has grown by 99% from its FY2012 (fiscal year ended 31 March 2012) to FY2016 whereas its trade payables has increased by 82%. Moreover, the company’s trade payables in FY2016 is one-third the same year’s revenue.

Trade payables days

In simple terms, trade payables days indicates the average number of days that a business takes to pay its suppliers. The ideal scenario is to see a company’s trade payables days be stable or increase over the years.

The formula for calculating the trade payables days is given below:

(Closing trade payable days) / (cost of goods sold) x 365 days

So how has Singapore Post’s trade payables days changed from FY2012 to FY2016? Let’s see below:

Singapore Post trade payables days chart
Source: Singapore Post’s annual reports

We can see that Singapore Post’s trade payables days has declined from 227 in FY2012 to 168 in FY2016.

A Foolish conclusion

In sum, Singapore Post’s management of its trade payables has weakened over the years. Although the company’s trade payables is high in relation to revenue and has grown at a similar rate, the decline in trade payables days has been sharp.

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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.