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Update: KHD Humboldt Wedag International

August 30, 2010

Great Post on KHD Humboldt Wedag International at Above Average Odds Investing. Much more in-depth than what I posted here as regards the income statement and projected earnings. However, I think they might have focused a bit too much on the cash on KHD’s balance sheet; a good percentage of it is deposits related to unearned prepayments for signed contract work not yet completed. Some of these deposits are refundable, so what they have is not all unencumbered cash. Note what happened in 2008/2009 when contracts were cancelled; not only did the cancellations impact earnings but cash had to be returned to customers, substantially impacting KHD’s cash balances.

One Comment
  1. Jay,

    First off, great blog and thanks for the KHD and PRXI plugs(I’ve added you to my permanent blog roll)!.

    I did want to quickly make clear that the roughly $7 in excess cash I used in my valuation is net of the deferred revenue liability (i.e., it is the amount of excess cash that the company will not need to run its day to day operations and hence cannot be recalled so to speak by cancelled contracts).

    Thanks again, and keep up the good work.

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