June 28, 2022

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Cashflow Is The Lifeline Of A Company

I have had many opportunities over the years to meet many businessmen. Be it big or small, whenever I ask them what is most important thing when running their business, without hesitation they will tell me - cashflow.

Cashflow is the reason why a company can remain a going concern. It is also the reason why a company can sustain, grow and expand. A company with a healthy cashflow is a stable company. Almost every major company that collapsed can be attributed to cashflow problems. Thus, I find it perplexing when some quarters of retail investors choose to ignore or overlook this important metric. Some would focus on solely on rumours yet I seldom hear people saying, "I invest in this company for the strong consistent cashflow".

Looking at Serba Dinamik ongoing saga, the vast amount of comments and scrutiny over the past weeks have been drilling into their high debt, high receivables and negative cashflow. I remembered how Serba Dinamik along with KPower SCIB were darlings of the stock market up until their most recent quarterly report. Why didn't those research analysts or fund managers who promoted the stock pick this up? Why only on hindsight everything is surfacing?

In fact, many readers have repeatedly asked me about these stocks and why did I not invest or write about them. To me there were many red flags but one of the main issue was the cashflow. In all honesty, it would be great if Serba Dinamik issue is just one big misunderstanding, that way there will be no domino effect to the banks who loan them money, bond holders, suppliers and most importantly, retail investors. I take no comfort or joy seeing this happening. It serves no one any good.

Cashflow specifically operating cashflow is very important to me so much so it forms part of the key metrics in The Money Equation approach which I devised towards stock picking. Retail investors must be cognisant just because a stock has a very low PE ratio or EP ratio doesn't make it the most underrated or undervalued stock in Bursa. One must understand there is more to investing than just a singular data point. Coming to a decision must be based upon a coherent set of metrics forming a parameters before a well informed investment decision can be made. Operating cashflow is definitely one of it.


For link to my new book - "Once Upon A Time In Bursa", please click HERE :

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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