Will Yamana Gold Disappoint Analysts Next Quarter?

Seth Jayson

September 16, 2010

There's no foolproof way to know the future for Yamana Gold (NYSE: AUY) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result. Rest assured: Even if you're not monitoring these metrics, short-sellers are.

A cloudy crystal ball
I often use accounts receivable (AR) and days sales outstanding (DSO) to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- days worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

AR that grows more quickly than revenue, or ballooning DSO, can suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like Yamana Gold do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is Yamana Gold sending any warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: Capital IQ, a division of Standard & Poor's. Data is current as of last fully-reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculated DSO uses average accounts receivable. I prefer to look at end-of-quarter (EOQ) receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars (DSO) indicates a trend worth worrying about. As another reality check, it's reasonable to consider what a normal DSO figure might look like in this space.

Company	LFQ Revenue	DSO
Yamana Gold	$351	23
Barrick Gold (NYSE: ABX)	$2,642	9
Kinross Gold (NYSE: KGC)	$697	22
Newmont Mining (NYSE: NEM)	$2,153	23

Source: Capital IQ, a division of Standard & Poor's. DSO calculated from average AR. Data is current as of last fully-reported fiscal quarter. LFQ = last fiscal quarter. Dollar figures in millions.