This is a post about reading the balance sheet, not a more theory-laden discussion of whether having cash is a good thing for a company or not.
–The most obvious case where cash is not an unadulterated plus is when it’s offset by short- or long-term debt. Having $5 a share in cash and no debt is certainly a different situation than having the cash but owing $15 a share to your bankers. There are all sorts of subtleties here–bonds vs. bank debt, factoring receivables, coupon payments vs. accretion of discount, payables/receivables–but these are stories for another day.
The other two concern working capital, ex debt (as it turns out, the prospectus for Blue Apron (APRN) made me think of both of these).
—deferred revenue. If you subscribe to a magazine or newspaper or a home-delivery food service, you typically pay for the service in advance. The way this is accounted for on the balance sheet of the company you’ve contracted with is: the total amount you pay is listed on the asset side as cash; on day zero no services have been delivered so the cash is counterbalanced by an equal deferred revenue entry on the liabilities side. As services are provided, the deferred revenue is gradually reduced by the amount being recognized on the income statement as sales.
(Note: I can’t recall ever having seen a long-term deferred revenue balance sheet entry. MSFT, maybe? My guess is that if long-term deferred revenues exist, they’re folded into “other” among long-term liabilities.)
Pre-IPO APRN had $61.2 million in cash and $21.8 million in deferred revenue
—receivables vs. payables. Receivables are trade credit a firm extends to customers; payables are trade credit that suppliers are offering to the firm. Having few payables and a lot of receivables is usually a sign of corporate strength. Suppliers are eager enough to do business that they offer their wares on credit; customers eager enough to consume that they pay upfront.
Nevertheless, payables are basically the same as short-term loans. They just come from a supplier rather than a financial lender. In computing working capital (short-term assets minus short-term liabilities), payables are a subtraction.
In the APRN case, the pre-IPO company had $0.5 million in receivables and $77.7 million in payables. Receivables – payables = -$77.2 million.
more on the APRN situation
In APRN’s case, $61.2 million (cash) – $21.8 million (deferred revenue) – $77.7 million (net receivables) = – $38.3 million.
If we compare APRN at 12/31/16 with 3/31/17, we can see the transition from a positive of about $7 million for the calculation in the paragraph above to the -$38.3 million. This is financed, as I read the balance sheet, by a $55 million increase in long-term debt during the quarter. So APRN is not generating cash; it’s burning through it rather quickly.
My quick perusal of the prospectus didn’t turn up enough other data to draw a strong conclusion (e.g., is this seasonal?), but the 1Q17 cash deterioration certainly looks odd.