Investors are more likely to be drawn to a company that is efficient in converting assets and capital into profits. Thus, whenever I wish to make an investment, I closely monitor cash flows and cash conversion on a comparative basis. In this article, I apply this principle to mining giant Vale (VALE).
At the moment, Vale is the second largest metals, energy, logistics, raw material, food and mining company and a giant among the publicly traded companies of the world. Currently, the market capitalization of Vale is US $129 billion and it has more than 420,000 stockholders all over the world. Vale’s history is marked by its capacity for transformation: not only the transformation of minerals, but also the transformation of issues into appropriate solutions and adversity into results.
Vale generates its major revenues from iron ore and pellets (68% in 2011), nickel (10% in 2011) and fertilizers (6% in 2011). Last year, other revenues included 3% from logistics, 3% from copper, 2% from coal, 1% from manganese and ferroalloys and 1% from other operations.
Cash Conversion over Zealousness
Taking into account the duration of the production cycle, the method I prefer to use is the Cash Conversion Cycle [CCC], which is a type of financial metric that estimates the time period required by a company to convert the capital [CASH] invested in the business to the cash received (because of business operations); that is equivalent to the average of the processing period of stock (inventory) and the average of collection period of receivables minus the average of payment period of payables.To continue reading, click here.
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