Wednesday, August 10, 2005

The receivables conundrum

My general disinterest in REFR's most recent quarterly report notwithstanding, one item of interest has come to light, even if it more of a curiosity than anything else.

For the first half of 2005, REFR has recorded revenue of $78,242. Over the same six months, REFR's accounts ("royalty") receivable has increased by $110,750. Now, for those not familiar with accounting practices, receivables are money the company has earned but not yet been paid. They are recorded as revenue, but are carried as a non-cash asset on the balance sheet.

But if receivables have increased by over $110,750, how is it that there isn't at least that much in revenues? Did REFR somehow have negative payments from its customers?

The answer appears to be in the "deferred revenues" line of the balance sheet. In the past six months, deferred revenues have jumped from $10,000 to $90,000. Deferred revenues are, in a way, the opposite of receivables, in that they represent money paid to REFR but not yet earned by the company. So, reducing the increase in receivables by the increase in deferred revenues, the increase in receivables drops to $30,750, which is at least within the realm of mathematical possibility.

Mind you, it is widely considered a red flag by company watchers when receivables increase faster than revenues. Of course, in REFR's case, revenues aren't increasing anyway. Besides, what is one more red flag among in a company with so many you'd think it was the Chinese embassy?

No comments: