Recently we discussed the Boyd Group Income Fund (“Boyd”), specifically the 2015 Income Statement, and how it is both similar and different to the income statements of other operators in the industry (See "Analyzing Boyd's 2015 Income Statement"). In 2015 Boyd generated an impressive $1.2 billion in sales but reported a net loss of nearly $22 million dollars (all figures are in Canadian dollars unless otherwise specified). Boyd is the parent company of Gerber in U.S.
Many in the industry mistakenly assume that because the company operates at a net loss it is only able to remain in business through the benevolence of Wall Street banks or some other obscure means. The reality is quite the opposite.
While earning my MBA and while working as an equity analyst, I learned that to better understand the strength of a company, as well as the motivations of management, it is always best to look directly at the statement of cash flows. The cash flow statement tells the reader exactly how much money the business generates and exactly how management is investing and spending the money they make.
Boyd, while operating at a net loss, generates millions of dollars of cash every year in collision repair in North America. And when adjusting for certain accounting idiosyncrasies unique to the legal structure and location of the firm, the company generates a respectable profit. Boyd clearly understands how to use finance to drive growth.
Boyd practices accrual accounting, meaning the company recognizes expenses as they occur rather than as they are paid. Due to the legal structure and domicile of the company (it trades as a trust domiciled in Canada) there are a number of non-cash expenses that lower the profitability of the company but have no impact on the cash the company generates.
How much cash did Boyd Generate in 2015? $82 million dollars from day to day operations – a 60% increase over 2015. But I find what the company did with all that cash to be even more interesting.
Cash from Operating Activites
While reporting a $22 million net loss, Boyd generated $82 million in cash from day to day operations in 2015. Cash from operations only includes day to day activities and does not include any cash received from taking on debt, selling stock, or divesting assets. Cash generated from operations represented a respectable 6.4% of sales. More telling, however, is comparing the results year over year. In three years the company has more than tripled the amount of cash it generates from operations annually, increasing to $82 million in 2015 from $25 million in 2013.
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