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QuestionsCategory: Financials QuadrantF&B company ROE distorted by debt (leverage) & impact of CCC using digital payment
yoga asked 1 year ago
  1. May i know if a company took on additional debt, how do we analyse the distortion in ROE?

      2. F&B company deals with cash payment upfront, while it pays its supplier months later, hence negative CCC. May i know what is your views on SG transiting to a cashless payment. Will it fundamentally change the CCC cycle? How many days does it takes to credit back to F&B company?

1 Answers
Victor Chng answered 1 year ago

Hi Yoga,
 
1.My explanation for debt distortion is flawed as it based on the simple formula of Total Equity = Total Asset – Total Liabilities. Increase in liabilities will reduce the equity which in return increase the ROE. But in real life, increasing debt will increase cash so it will balance out. Just ignore, this part when I explain in the ROE video. 
 
2.Cashless payment will not affect the CCC as the collection days still will not exceed the payable days.