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Msg  342258 of 353144  at  7/29/2021 5:01:23 PM  by

romm


 In response to msg 342237 by  Riskyinvestor
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Re: CVE accounting

Risky,
Great, thanks, but....not convincing.
 
"Remember what Free Fund Flows are. They represent cash that can be taken out of the business without effecting operations. So its straight forward to show that CVE generated $1,283 billion in operating free fund flows in Q2. In basically a no growth mode they could have reduced debt by 1,283. Instead, they used operating fund flows to paid some dividends and increased non-cash working capital. Remember, we won't see this quarters increase in receivables and inventory again future quarter's fund flow or FCF calculations."
 
I'm not questioning Free Funds Flow from accounting stand point, there are some tricks. I was trying to get to the bottom line of free hard cash generated in the quarter that can be stored in a bank and used for any purposes like debt repayments, buybacks etc.
 
$1.283b cannot be used for those goals...and were not used as total debt was cut by $900 mm only including $100 mm from asset sales and ~$150mm from FX.
$650mm only was generated real hard cash and used for debt repayment.
 
Net change in net cash working capital of $430mm means little to me unless CVE would have clearly indicated that $430mm represent WC surplus (cash balance). That would be pure cash that could be used next quarter.
 
In such condition I would add $430mm to $650mm debt reduction for a total of $1.080b FCF plus $250mm from asset sale and FX.
But CVE didn't provide WC deficiency or surplus.
Actually it doesn't make sense to provide a surplus as such cash is classified as Cash on the balance sheet. So majority provide WC deficit they maintain to reduce debts on RBL to reduce interest payments.
 
Many companies provide total NET DEBT each quarter that represents LT debt plus WC deficiency minus cash on the balance sheet.
CVE did not, if I didn't miss something.
 
Adding $430mm WC means adding only, but doesn't mean WC was at a surplus, it could be still at lower than in Q1 deficit. If so,  Total NET DEBT would be higher than reported $12.4B.
 
I don't dig too deep and stay at reported total debt only. 
 
One positive thing that I'm starting to learn from Mike and you - inventory build up.
If that $200mm "loss" was from inventory buildup waiting for better pricing (I'm not sure why because oil prices were great, but perhaps they have stored product inventories?), -then $200mm is pure earned cash to receive in Q3.
 
In that case total hard cash earned would rise from $650mm to $850mm which is much better, but still well below expectations.
In this case in Q3-Q4 CVE would need to deliver $2.2B free hard cash  for paying debt down to $10b in addition to $200mm reserved from Q2.
 
Intergrateds are more complex for sure. 
 
romm 


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Msg # Subject Author Recs Date Posted
342270 Re: CVE accounting Riskyinvestor 24 7/29/2021 6:02:15 PM


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