Last night I updated the company scoring for IGB so let’s take a look at the analysis.

Profitability
As you can see, turnover has been growing but at a decreasing rate since 2002. This means that the company is still growing, but slowing down. Therefore its profit growth is also decreasing. Its operating cashflow is also lumpy (i.e. all over the place with no trend) which is not normally desirable for investors because this measures the amount of actual cash coming in and out of the company’s accounts (things sold on credit therefore don’t appear here). The ideal company will be able to translate 100% of their sales revenue into actual cashflow and we want to see as much evidence of that as possible.

Still the research report I linked to in my previous post believes that sales growth is still intact which is good.But my point here is that profitability includes 2 elements: consistent sales growth and consistent cashflow growth. You can’t have one without the other.

Debt and Capital
The good thing about this company is that it is not highly geared - i.e. its liabilities are low compared to its assets. The thing I like is also that its receivables (i.e. unpaid bills) is decreasing. This tells me the company is not just taking IOUs, but is actually taking in money. Another thing I like is that the growth of receivables is lower than the growth in sales. This means that its growing sales numbers are actually translating into money quicker than it is being translated into IOUs.
Operating Efficiency
Remember what I said about being able translate sales growth into cashflow? Another way to look at this is to examine net income / turnover ratio. This shows how effective the company is at translating sales into profit. In this case it is managing to make 30 cents out of each dollar earnt. This is where the company outshines its bigger peers such as Topglov (which is only doing it at a rate of 10%). However I didn’t reward them for this because this number is not improving. It has been around this level for some time so although it’s efficient, it’s not becoming more efficient. However I did reward it for the next item: Turnover / Current asset ratio. This shows you how much sales it is generating with the assets it has. The larger the percentage, the leaner the company. This company is managing to sell almost $1 worth of products for every $2 worth of assets it owns compared to last year when it was hitting maybe 84 or 85 cents. This is an improvement which should be rewarded.
Added Tests
Finally, these added tests give even more colour to the figures. They are ‘nice to haves’. Net / Profit shows how much profit it is making taking into account its liabilities. Big liabilities mean a big balance sheet. Therefore the smaller the balance sheet compared to the liabilities, the more efficient it is. Normally I would look for about 20% but this less than half so I have penalised it even though it has more than enough assets to cover them. Furthermore, a large proportion of the liabilities is made up of creditors who could be culled.

Cashflow / Total Liabilities is practically the same test except that we are using cashflow instead. Because the cashflow is inconsistent so too are these figures. However it is good to note that last year it made an improvement of over 8% which is no bad thing (not enough for me to give it a point though).

Conclusion

As you can see, the scorecard rates this company quite highly which is why it is on my watchlist. But remember to look at its prices to determine whether it is a good time to buy or not!