Getting To Grips With The Trade Payables Management Of Venture Corporation Ltd

Venture Corporation Ltd (SGX: V03) is an electronics manufacturing services provider. It has its fingers in a range of activities, such as printing & imaging; networking & communications; retail store solutions, and more.

As a manufacturer, Venture’s operations require working capital. In general, for a company to fund its working capital needs, there are two ways to do so.

One is to make use of trade payables (which is essentially money owed to suppliers in the normal course of business) and the other is to make use of external borrowings. The former is usually ‘free’ in the sense that no interest has to be paid, while the latter will definitely involve interest.

Thus, to reduce external borrowings to fund working capital, it is important that Venture handles its trade payables well. Here, we will try to ascertain how well Venture has been managing its trade payables by looking at two things: (1) Changes in the value of its trade payables as compared to revenue, and (2) days payable outstanding, which is also known as trade payables days.

Changes in trade payables

Trade payables is an account found on the liabilities section of Venture’s balance sheet. Ideally, trade payables should (1) change in tandem with revenues and (2) be high in relation to revenues.

Here’s a chart showing how Venture’s trade payables and revenues have changed from 2012 to 2016:

Venture revenue and trade payables chart
Source: Venture’s financial statements from 2012 to 2016

For the period under study, Venture’s revenue has increased by a total of 20%, whereas its trade payables has surged by 70%. The company’s trade payables at end 2016 is also just 17% of its total revenue for that year.

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 payables days) / (cost of goods sold) x 365 days

So how has Venture’s trade payables days changed from 2012 to 2016? Let’s see below:

Venture trade payables days chart
Source: Venture’s financial statements from 2012 to 2016

We can see that Venture’s trade payables days has increased from 57 in 2012 to 82 in 2016. That’s an improvement of 26 days.

A Foolish conclusion

In sum, Venture’s trade payables management has remained stable due to two compensating forces: (1) The company’s faster growth in trade payables as compared to revenue, along with a low ratio of trade payables to revenue, and (2) an improvement in the trade payables days.

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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.