Dufu — High Accrual Ratios
Dufu (7233) was in my portfolio, until it gave out bonus issue. I bought it because it fit Magic Formula criteria (it still is actually). I sold it because I don't quite like activities that increase shares outstanding that will dilute EPS.
Then, I read a blogger in i3investor commenting about Dufu. One of the point is about booking receivable as profit. I read the article and comments from others, all the points make sense to me. My problem is, in accrual accounting, companies will record a sales even though the payment will only be received in a later date. Anyway, since i have sold the shares, I didn't checked further.
Recently, I re-read the article. Refer back to Dufu Q3 report, both revenue and receivable increased by roughly 30%. It is also true the increased in profit is almost the same as in receivable. In Dufu Q4 report, further see inventories increased by whopping 60%. But both reports are showing positive free cash flow (FCF).
When I check in Morningstar or WSJ, I can't find any ratio that gives out alert signs. Dufu seems very healthy.
To know whether Dufu is still worth investing, I put the Q4 data into my spreadsheet.
