April 24, 2014
The free cash margin index registered a minor decline in its most recent report. Published by the Georgia Tech Financial Analysis Lab led by NACM Graduate School of Credit and Financial Management (GSCFM) Instructor and Georgia Tech Accounting Professor Charles Mulford, the index measures a company's free cash flow divided by its revenue, but observers should note that a decline, in this instance, could actually be good news.
Continuing to operate within the narrow range between 4.5% and 5.0%, the free cash margin index for the 12 months ending December 2013 decreased to 4.56%, down from 4.68% in the 12-month period ending September 2013. The most recent index reading was also down from the 4.76% recorded for the 12 months ending December 2012.
While the report noted that analysts would prefer to see an improving free cash margin, the decline was driven less by the drop in free cash and more by an increase in revenues. Median revenues in the latest report increased to $726.07 million, breaking three quarters of decline and rising from the $705.28 million measured for the 12 months ending September 2013. "Also positive," the report said, "the overall cash cycle continued to improve to 48.06 revenue days from 50.85 days in September 2013 as inventories were again reduced."
Operating profitability also reversed its declining trend in the December 2013 reporting period, with operating cushion, measured as operating profit before depreciation, rising slightly to 13.97% from 13.76% in the September 2013 period.
Taken altogether, the results of the most recent free cash margin are "mixed to positive" according to the report, reflecting the on-again, off-again performance of the overall economy. "While revenue growth and improving operating cash margins give reason for optimism, managers confident in the recovery would not be so tentative in their capital spending and would be growing inventories, not shrinking them," the report said. "In all likelihood, with growth, we would see a continued decline in free cash margin, as inventories expand and capital spending increases. Such changes would bode well for a continuing recovery and would allow us to put the 2009 recession into the history books."
The full report, complete with industry breakdowns, can be found here.
- Jacob Barron, CICP, NACM staff writer
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GM Court Filings Raise Questions about Bankruptcy Disclosure, Suing New Entities and Even the PrePack Trend
In the growing fallout of General Motors' failure to acknowledge and fix defective ignition switches in some of its cars in a timely fashion, the automaker's long-finished bankruptcy proceedings now are being called into question. Should a federal judge allow a new class-action suit against GM to proceed, resulting in a case that Deborah Thorne, Esq., partner in the Chicago office of Barnes & Thornburg LLP, and Bruce Nathan, Esq., partner with Lowenstein Sandler LLP, call "fascinating," it could have ramifications for bankruptcy cases going forward.
In the US Bankruptcy Court for the Southern District of New York this week, GM filed a motion seeking the dismissal of a growing number of lawsuits alleging that GM failed to disclose potential claims tied to known ignition switch defects during its bankruptcy reorganization late last decade. GM argued that it is operating as a new company following its judge-approved reorganization in 2009 and shouldn’t be open to suits filed after that point, even though it has reportedly honored some related claims outside of court.
"If, in fact, as some parties claim, GM did not disclose this properly in bankruptcy proceedings, there could be a case for bankruptcy fraud," Thorne said. "Lack of disclosure does happen. Should something have been an asset of the state because creditors would have benefited or did someone somehow fail to list an important claim? All the facts are not yet known, but if credibility is given to the claim against GM, it could be very serious." Nathan believes that if a judge does allow plaintiffs to pursue cases against the "new" GM, fallout could come in the form of numerous litigations not just related to this case, but others as well, even if few similarities exist between them.
The callback of a bankruptcy case settled nearly five years ago raises the question of whether this could become a trend and, if so, if the somewhat new culture of prepackaged, rapid restructurings could be to blame. "In a very fast filing, mistakes can be made," Thorne said. “Making sure everything is listed is obviously critical…people can go to jail for bankruptcy fraud if everything isn’t listed.”
Nathan is skeptical that fingers should be pointed at the fast-paced prepacks that emerged following the Great Recession. "Rush can lead to overlooked claims, yes," he said. "But I think this is different and unique. How often do you see this, facts being allegedly known to management and hidden in a bankruptcy claim? If management purposely avoided notice of this, that could be a serious issue, but you don’t see this in many cases."
- Brian Shappell, CBA, CICP, NACM staff writer
Credit Congress Session Highlight: The Future of Payments—Ready or Not
Moderator: Rudet Fountain, United TranzActions, LLC
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The use of recruiters to fill or find jobs in commercial credit appear to be quite popular, according to NACM's April Survey. The actual results delivered by placement services, however, were decidedly mixed, with many respondents reporting both positive and negative experiences.
When asked "have you or your company ever used a recruiting service to fill a credit-related position, or have you ever been cold-called by a recruiting service looking to do the same?" 64% of participants responded "yes" and 31% said "no," indicating that for most commercial credit professionals, recruiting and job placement services are a fixture in the industry.
"I was called just recently by a recruiter," said one respondent, echoing the comments made by several participants that had been engaged by a recruiter in the recent past. "They first asked if our company was in need of any positions filled in accounting or credit. When I said no, they very professionally asked me to keep their name and number if I should find myself seeking employment or if my company needed help in the future," they added, noting that this same scenario has played out before, only with a much less pleasant outcome. "I have had calls where they were very unprofessional and end the call. If I receive calls that are professional and not a solicitor type call, I do not mind."
Others noted that the value of a recruiting service depends on the type of position a company is trying to fill. "It has been my experience, for lower level A/R positions, that the candidates have been good matches," said one respondent. "However, for a position in credit management or senior collections, the screening of the candidates has been questionable and disappointing. Does the recruiter really understand the roles and what is required to be a good fit?"
Similar questions rang in other participants' ears as well. "I would prefer drawing on my own experiences rather than having a head hunter with no credit experience try to fill a position that I'm trying to hire for," said one respondent. Another respondent said, "Our experience has been mediocre when it comes to credit professionals. We provided a job description and discussed corporation culture with the recruiters, but still some of the candidates were too aggressive for our company and some did not possess the experience we were looking for in reviewing and evaluating new accounts for credit."
Still, some found that the cost of a recruiter was worth it in order to fill positions quickly. "It was good that the firm screened out the non-qualified candidates and sent over only those candidates that fit my hiring criteria. While I do not like the fee they charge, at least I had a 90-day period to determine the fit before we had to pay," said one participant. Others noted, however, that the depth of talent available to properly fill vacant credit positions isn't what it used to be, making hiring harder, with or without a recruiter. "Normally in past years I would get a large number of resumes to review from an agency and, ultimately, interview with the opportunity to have a couple to choose from to hire," they said. "Today I have two agencies working and I'm not getting much to look at, and what I am given as potential candidates do not excite me much. Therefore, it is much more of a chore today to hire than in past years."
- Jacob Barron, CICP, NACM staff writer
NACM's May Survey will ask you to vote to determine the winner of NACM's elevator speech contest. Look for the announcement in next week's Credit Essentials email, or check here at the beginning of May.
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The latest KPMG Global Anti-Money Laundering (AML) survey tracking fraud and other trends watched closely by financial institutions indicates that the topic "has never been higher on senior management’s agenda."
KPMG officials and analysts said financial institutions are making significant changes to their AML protocols, more so in 2014 than in prior years. Key drivers stem from heightened regulatory fines and actions as well as the growing threat of criminal prosecutions against banks and their staff, including the highest ranking officials, for negligence or non-compliance. The study indicates that 88% of those polled believe their board of directors takes an active interest in AML. That tally is up by 26% over the last three years. Only 3% did not believe their board of directors takes an active interest in AML issues.
Notable within the study was that respondents believe the cost of fighting AML continues to grow among financial institutions and at a rate greater than predicted in 2011, the last time KPMG released a study on the topic. The greatest area of such spending has been on transaction monitoring systems. However, satisfaction with such systems at present is lower than it was in 2011 or 2007, according to KPMG. "We believe that senior management will continue to underestimate AML expenditure unless lessons are learned from past mistakes," said the study's authors, who also believe that senior management often fails to ask the right questions.
A gap in education may be to blame for the lack of satisfaction with monitoring systems. KPMG noted that more than one-third of those polled said their board of directors does not receive formal AML training. Comparatively, 86% of front office staff receives such training to stay current, with an even higher percentage for those in North America. To view the full report, click here.
- Brian Shappell, CBA, CICP, NACM staff writer
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The US Small Business Administration (SBA) announced this week that for the third year running, states will be able to apply for grants from the agency to support efforts to increase exporting by small businesses through the State Trade and Export Promotion (STEP) grant program.
A total of $8 million has been appropriated for the grants, which might not seem like much, but STEP grants have proven themselves profitable, with awardees from fiscal year 2012 reporting a return on investment of federal funds of over 17-to-1. States, along with the District of Columbia, Commonwealth of Puerto Rico, US Virgin Islands, Guam, American Samoa and Commonwealth of Northern Mariana Islands, are all eligible to apply for the grants, which will be awarded competitively according to the proposed project plan and budget, along with how well it's expected to meet two specific goals: increasing the number of small businesses that begin to export and increasing the value of exports for small businesses that already export.
"With today's technological advances, small businesses are better equipped than ever to compete in a global marketplace. Exporting provides tremendous opportunities for America’s small businesses that are looking to expand and grow," said SBA Administrator Maria Contreras-Sweet. "The STEP program is another way that the SBA is partnering with states to give small businesses the tools and resources they need to take their business to the next level."
More than $2.1 trillion worth of goods and services were exported in 2012, and export growth has regularly been highlighted as a notable bright spot in the American economy for the last half decade. Still, despite this and the continued efforts by federal officials to increase global participation by American businesses, less than 1% of the nation's 30 million companies actually export.
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- Jacob Barron, CICP, NACM staff writer
See These Job Listings and More in NACM's Credit Career Center
Leasing Credit Sr Officer at Bank of America in Providence, RI
Credit TRX Analyst at Sysco Memphis LLC in Memphis, TN
Credit Analyst at Automation Service in Earth City, MO
Credit and Collections Manager - Domestic and International at Bridgewell Resources LLC in Tigard, OR
Corporate Credit Manager at WSM Industries in Wichita, KS
NACM's Credit Career Center is your industry-specific job board offering employment connections for the business credit community.
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Though final statistics for April will not be available until early next month, the Flash Purchasing Managers' Index (PMI) from Markit Economics and HSBC, which handles China, indicate that the world powers are going in drastically different directions. China, specifically, appears to be headed in a scary direction, considering the economy’s importance to many export-dependent nations.
Though the Flash China Manufacturing PMI was 48.3 in April, a slight uptick from March's 48, the important categories of output and new orders, including for exports, showed considerable weakness. Decreases were also noted in employment, backlogs of work, stocks of purchases, quantity of purchases and supplier delivery times. Though positive news came from output/input pricing as well as the stock of finished goods, China's risk is as apparent as ever.
The Markit Flash PMIs for the United States and Europe, however, continue to paint of picture of recovery. The US PMI, which was nearly unchanged from March at 55.4, showed strengthening increases in output, new orders and staffing levels, while input cost inflation is at its slowest in about a year. Additionally, production rose at its fastest pace since early 2011. Meanwhile, the Markit Flash Eurozone PMI, up nearly a full point to 54 in April, showed business activity expansion approaching a three-year peak. Goods producers led the improvement in certain areas such as new orders. It's the tenth consecutive month of gains within manufacturing.
Markit and its partners base the Flash statistics on at least 85% of the expected responses for a country or zone. Final statistics for April will be available in early May.
- Brian Shappell, CBA, CICP, NACM staff writer
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