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Today we have another example of how financial analysts might use Calcbench to improve or accelerate your review of corporate disclosures. This time, we’re looking at deferred revenue versus cash.

Why? Because that metric can sometimes suggest trouble over a company’s longer term, depending on specific industry. Deferred revenues are money the firm will get sometime in the future, but not in the current filing period. Example: a multi-year contract to provide software or equipment. The initial payment is booked revenue; payments due within the next year are current deferred revenue; payments due after that are non-current deferred revenue.

A company with large amounts of deferred revenue relative to cash might hit turbulence in future filing periods, if its expenses balloon or that deferred revenue doesn’t materialize. For example, if you sign a five-year deal to manufacture equipment for a client, that’s lots of deferred revenue on the balance sheet. Then you need to spend money buying and processing materials — which could cause problems if you don’t have enough cash on hand for those initial costs.

A large amount of deferred revenue can also mean a larger risk of customers canceling orders in future years, leaving you holding a bag of fixed costs. If you don’t have enough cash, that bag could bust open. This is also why a spike in allowances for doubtful accounts should set off alarms all over the place.

What We Did

First we used the Multi-Company Search page to find the 2017 cash and deferred revenue reported by more than 450 filers in the S&P 500 so far. We divided deferred revenue into cash and expressed that as a percentage, and sorted the list from largest to smallest. The top 10 are in Figure 1, below.

Now, are those ratios dangerously high? Not necessarily. It depends on the company’s industry sector. For example, five of the above companies are insurance firms, and they routinely have sky high piles of deferred revenue, thanks to all those term or whole policies we all sign that last for decades.

The average for our whole population of 450 companies is 53.6 percent, but many filers have a ratio of zero because they don’t even report deferred revenue. So it’s unwise to draw broad conclusions about the S&P overall based on this metric.

You can, however, take the ratio for an individual company and apply it to that company’s peers. For example, right there on the Multi-Company page, you can enter a specific company’s ticker symbol and see the results (in this case, cash and deferred revenue) for that company only. Then you might want to click the Show All History box on the upper right, and all disclosures we have for that company will appear.

Or you can jump to the Company-in-Detail page, where the company’s financials will appear automatically. You can click the “Compare to Peer Group” option on the upper right side, which will give you a multi-company view for only those peers. Or, of course, you can create your own peer group.

Our point: Calcbench lets you quickly pull together any number of financial analyses that might help you identify hidden trouble, hidden potential, or many other insights. Then you can skip across various databases we have to study one company in detail, a peer group in detail, large populations as a whole, or whatever else catches your fancy.

The data is there. All you need to do is Calcbench it!


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