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Quoted from "odyd12"

I am not sure if I understand any of above.

I'm talking about the working capital structure. If you go back to a time when the industry was in expansion mode and companies like LDK were still primarily wafer sellers (say early 2010) you will see very different balance sheet metrics between wafer sellers and module sellers, regarding for example DSO/DPO ratio. The reason for this is that for the center point of the value-chain - the module seller - there is less fixed capital requirement and more working capital requirement. For their suppliers and customers it is opposite. This lead to that the module seller, in order to win business, had to use cash flow for operating activties thus providing credit for the rest of the value-chain and by this having to operate with positive working capital. For the upstream players this conversely created an opportunity to operate with negative working capital thus freeing up cash to be used in investing activities. I'm saying that this structure made it impossible to compare a balance sheet between a wafer seller and module seller on an apples to apples basis (just like you can't compared BS of service company with manufacturing company). I'm also saying that this structure of the industry reduced the need to have cash provided by financing activity to enable the growth of the industry (thus allowing industry operators to retain more of the operating profits versus the banks). Basically what I'm saying is that you cannot treat all liabilities equal. In expansion mode some (the interest free business credits) are more valuable, since they allow you to expand your business at lower cost (don't have to ask debt and captial markets for financing and thus not pay their "fees").

This is also why you see cash flowing into operating activities for companies that go from upstream to down stream and this is why a company like SOL that made net profit in 2011 had negative cash flow from operations (going module requires the former upstream to expand its inventory value and even more so its receivables).

I want to go back to the orginal discussion of Klothilde's "debt ratio = total liabilities / equity" measure. This is a very simple and good measure as an alert, but it is to obtuse to determine risk. If it is low like 0%, you can of course say that financial risk is low (risk is instead that the company is too defensive if operating in a growth industry), but if it is high you need to look further on what type of assets there are and what type of liabilities there are. Asset types of interest:

Cash - low risk
Other current assets
Fixed assets

Liability types of interest:
Debt
Other liabilities

For me the most important thing to first consider is the cash. Example

Equity: 100m
Assets: 1000m of which 900m is cash
Liabilities: 900m

Here it will make a huge difference if the company plan to use that cash to pay down liabilities or to acquire fixed assets. Therefore I think one has to adjust for (not specifically investment allocated according to company statement) cash. In case of CSIQ they have 1870m in liabilities, but they also have 690m in cash. With same liabilities and equity level, but say 90m in cash instead the risk would be higher.

Quoted from "eysteinh"

Regarding the other comment that previous investor got screwed i just had to laugh, i dont care a single cent if the company wrote down asset value, it matters zero to me what the value is on paper, what matters is what other people would buy the asset for.

I understand that view Eystein. That's what I meant. Writing down asset value does not impact future cash flow, but it means that investment cost was higher than revised estimate of future cash flow, thus the write down was required. Old owners infused the capital to pay for that investment and then again more capital to clean up the balance sheet after asset write downs. The stock price should have appreciated more for this clean up and thus if minoriy holders were not screwed they would be able to average down at a price lower than market (was this the case or did bigger owner get preferential conditions/allocations?). Now it is still possible to average down or enter low with stock market purchase despite that the clean up is done. This is a buy opportunity.

Do you know what average cost one would have if buying at IPO and using all emission rights after that? I know REC is down more than 99% from the peak, but maybe the average price of shares issued is not too far above current stock price?

REC Solar looks great and REC Silicon too except for the short-term political risk issues, but I'm wondering what went wrong with REC wafer, since they have competitive module cost including wafer in Singapore? I have not followed it, but shouldn't they with in-house poly and some technology edge be able to compete? Was it to expensive to get non-Si supplies in Norway or what was the issue? I don't understand the difference between Norway and Singapore plant. This belongs in a REC discussion group, but there is none.

@odyd, it would be nice to break out a REC discussion group and maybe also an accounting group. We are digressing again from Nano's original topic. A "reply-in" feature would be nice, so that you can change group when digressing. Is there a technical solution for that in the platform you use?

Quoted from "solarman1"

Guys, I thought this thread was created by nanogofish about CSIQ's pre earning numbers for q4 2012. How did it get to Rec and other topics? Am I missing something?

Solarman...I would consider this one of those “good digressions”. I’ve been learning a lot on one of my weaker points...detailed accounting specifics. And I’m glad some people with more accounting knowledge than me challenged that off-topic “TOXIC” rating and the way it was presented.

I do find it extremely odd that Western Banks are still willing to lone 100’s of Millions of Dollars to CSIQ within the last few months, because with my definition of Toxic no-one outside of China would lend you a penny. So I question the usefulness of this performance indicator, at least in the solar sector, especially when it’s thrown out there all by itself...but I also agree you can use whatever metric you want, and also interpret it anyway you want, when you're investing your own money...

That being said, I agree with you that all the detailed postings on REC got a little out of hand...easy to do with these types of discussions. But a good discussion flow gets interrupted with this level of specific details on other companies. A few comments back would have sufficed if disagreeing with another's comment...with reference to a new thread on the REC board for all the detailed info if one feels needed to back-up their point at this level of detail. It’s easier this way for readers to follow the main topic or sub-topic discussion, and helps prevent the perception of “spamming” one’s stock on another board...IMO of course...

Quoted from "explo"

Here it will make a huge difference if the company plan to use that cash to pay down liabilities or to acquire fixed assets. Therefore I think one has to adjust for (not specifically investment allocated according to company statement) cash. In case of CSIQ they have 1870m in liabilities, but they also have 690m in cash. With same liabilities and equity level, but say 90m in cash instead the risk would be higher.

I agree with you that debt/equity is useful as an initial alert and that you need to dig deeper to understand structure of assets and liabilities.

When you run a net debt/equity analysis on the companies of my table you will see that the split into good/bad/ugly is pretty similar (note that "debt" includes only interest bearing debt this time as opposed to total liabs in debt/equity):

SMA -21%
First Solar -2%
REC 20%
SunPower 40%
JA 42%
Trina 52%
Hanwha 83%
Canadian 95%
ReneSola 126%
Jinko 127%
SolarWorld 212%
Suntech 223%
Yingli 224%
China Sunergy 229%
LDK 5839%

The good and the ugly are pretty much set, and there's a little bit of movement in the midfield (the ok/bad). CSIQ is noticeably the one who moves up the most when looking at net debt/equity because of the relatively large amount of cash.

Which also points to one disadvantage of this metric: It does not reflect the increased financial risk of restricted cash. 327M of CSIQ cash is frozen, in part as collateral for loans (i assume project-related). If you exclude restricted cash from the calculation then net debt / equity goes up to 178% and CSIQ reverts again to a low position in the ranking.

Quoted from "nanofrogfish_spf"

I do find it extremely odd that Western Banks are still willing to lone 100’s of Millions of Dollars to CSIQ within the last few months, because with my definition of Toxic no-one outside of China would lend you a penny.

Western Banks are willing to lone money only for the utmost of guarantees, which is frozen cash:

Excerpt q3 CC:"The restricted cash balance was $371.9 million at the end of Q3, up from $362.5 million at the end of Q2. The increase primarily resulted from additional cash collateral for bank borrowings."

Also there's a difference between corporate and project debt financing. For project SPVs banks have the project assets and the PPA as guarantees. I would guess that western financing goes exclusively into project SPVs. But maybe you can tell more?

Quoted from "explo"

@odyd, it would be nice to break out a REC discussion group and maybe also an accounting group.

just a thought, but the number of separate discussions boards could become an issue in becoming too "complicated", especially since subjects frequently overlap. Having a diversion to a discussion on accounting once in a while is OK...if it happens frequently than a new board would be preferred. And some of the lower traffic subjects over time maybe could be grouped together or put into sub-catagories or something...

Quoted from "Klothilde"

But maybe you can tell more?

You can put whatever meaning you want into whatever metric you want, especially when it makes your own stock look better. Bottom line I’m pretty sure that the majority of investors, analysts and the business community doesn't consider CSIQ’s financial situation to be Toxic...

I think that pretty much sums it up...

It would be very beneficial for CSIQ to free up the 372M in restricted cash. Do you know how fast this can happen?

I moved this discussion to a new thread and added thread for REC.

Quoted from "nanofrogfish_spf"

I’m pretty sure that the majority of investors, analysts and the business community doesn't consider CSIQ’s financial situation to be Toxic...

With the stock in the $3s and 3 year high in the $26s, I would say they consider it toxic indeed. But so they do most solars. I don't think there is an exception in that list. They are all in the same toxic bucket. The question is will they all move in unison forever or are we going to see some break away from the pack? To tell you the truth I don't know why 2 certain companies are not trading at 10c already. At least that will make sense as anyone who is paying $1.60 and $1.30 is buying nothing of actual value that is worth that.

Quoted from "larryvand"

With the stock in the $3s and 3 year high in the $26s, I would say they consider it toxic indeed. But so they do most solars. I don't think there is an exception in that list. They are all in the same toxic bucket.

I started growing a beard 3-years ago, so that’s why I think the stock went from $26 to $3...of course just saying so doesn't make it so...

You can believe whatever you want. My opinion is that the price drops were a result of a continuous drop in earnings over that period, from positive to negative, with poor visibility as to when it would turn around, and of course with the obvious negative attack campaigns against all solars and especially the Chinese ones,...NOT because all 11 balance sheets suddenly turned toxic simultaneously. This drop was also magnified as it started from an overly high valuation that had been fueled by over-exuberance, and bottomed on irrational fears. And any bearish scare-tactics that said otherwise about ALL solars...well if that’s who you want to believe than that’s fine with me. But stating it as fact and as the only reason is just completely wrong.

And the companies whose balance sheets did eventually suffer, and even turn “toxic” in this downturn (LDK-STP), well their valuations went down more than the rest.

And now that the earnings potential looks like it’s returning, well now the stock prices are rising...but the balance sheets are still the same, and even a little worse...

Again, you can believe whatever you want, I’m just pointing out what most people know...but I am curious why you would waste all your time on a sector anyways where every company has a “Toxic” balance sheet?

Nano, because I believe in clean energy and I want to leave a better planet for my children. And if I end up being wrong with my choice, at least I tried.

Quoted from "larryvand"

Nano, because I believe in clean energy and I want to leave a better planet for my children. And if I end up being wrong with my choice, at least I tried.

That's very noble of you and I respect that, but there are other much safer investments in the clean energy sector, where you could help the sector as much, or even more, than an investment in a Chinese solar company. But you still chose the one with the "toxic" balance sheets?

You cannot generalize. There is the good, the bad, and the ugly.

All the Chinese solar are boiling in the same "toxic" pot. Wall Street has a special interest not to push Chinese companies that much is clear. And had I known that back in 2011 I may have chosen differently.

I agree that valuations have all a toxic ingredient to them. However with regards to balance sheets there are clear differences. JA and TSL imho stand out as companies who have always shunned excessive leverage. In the case of JA it's all the more noteworthy because the cell business had its margins collapse way earlier than the other steps in the value chain during this downturn.