To Individual Investors

Fluctuations in operating cash flows

A certain amount of time is required from cash disbursements for purchases of products to cash receipts for sales of products, so operating cash flows tend to be negative, especially during periods of expansion of orders received and sales. In the import business, which is TED’s main business, the period until cash is received is longer than in general, and in the trading business, the percentage of expenses for purchases is large, so this tendency is strong.

General flow of transactions of products

In the trading company business, products are purchased from manufacturers and sold in the market. The process starts with receiving orders from customers (1) and proceeds to receiving and delivering products, recording sales (6), and collecting accounts receivable-trade (7), which takes place at the end of product transactions.
If the flow is viewed from the perspective of cash flows, cash-out comes before cash-in. There is a timing difference between the cash-out and the cash-in. In the case of TED, there are many cases where the timing difference is relatively long, which may be approximately four to five months. This means that payment occurs first and sales proceeds are received four to five months later.

Therefore, cash-outs and cash-ins associated with transactions of certain products are not necessarily included in the same accounting period. There are cases where only cash-outs, which take place first, are included in a particular accounting period. (In this case, cash-ins are included in subsequent accounting periods.)

In general, a myriad of product transactions is conducted continuously, so there is no substantial impact as a whole. However, during a period of expansion of sales when orders received and sales increase significantly, transactions where only cash-outs are included in an accounting period increase, which becomes a factor that decreases operating cash flows for that period.

For these reasons, operating cash flows tend to be negative in the trading company business during periods of expansion of orders received and sales and in a growth phase for the business. Funds necessary for business operations are appropriately procured from financial markets to support smooth business activities.

Summary

In the trading company business, which is TED’s main business, operating cash flows tend to be negative during periods of expansion of orders received and sales.