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Linkedin advertises itself as the hiring solutions company for both employees and employers. Linkedin positions itself as a internet based company.

LinkedIn, Analysis

LinkedIn made news when it gapped up about 22% from $124 (7 Feb 2013) to $150 ( 8 Feb 2013) both on market close. The price on writing today (11 Feb 2013)  is $155 on close and $158 being the all time high. I looked at the financial and learnt that this give a price to earnings ratio at a whopping valuation of 809 time. No company is known to survive for such a long time.

Interestingly, the company did not release the statement of cash flow alongside its 4th quarter financial release. I was hoping that it would release its cash flow statement as a show of confidence that the company is making some cash for busines to carry on. It prompted me to dig deeper into the financial statements and tried to reconstruct its cash from operations.

Estimation of Cash 2012 2011 2010 2009 2008
Cash Flow from Sales 788 376 156 99 na
Cash for Goods (194) (110) (52) (33) na
Operating Expenses (541) (265) (122) (73) na
Capital Expenditures (261) (105) (52) (13) na
Cash flow from Non Trade (267) (254) (10) 0 na
Cash Tax Paid (14) 5 3 0 na
FCF (derived on Cash Basis) (1,083) (353) (77) (20) na
Historical FCFF 2012 2011 2010 2009 2008
EBIT 57 56 20 (3) (6)
Less : Tax on EBIT (35) (12) (4) (1) (0)
EBIAT 22 44 16 (4) (6)
Add : Depreciation (80) (43) (20) (12) (6)
Less : Capex (261) (105) (52) (13) na
Less : Increase in NWC 104 433 (5) 0 na
FCFF (264) (450) (11) (6) #VALUE!
FCFF per share basic $ (2.51) (5.83) (0.26) (0.14) #VALUE!
FCFF per share diluted $ (2.34) (4.32) (0.24) (0.14) #VALUE!

I utilised both methods, one relying both on profit and lost statement with balance sheet and the other relying on majority data obtained from profit and loss statement.  The working and solution of both methods are fully displayed here for viewing.

While the numbers disagree, the direction as to the cash flow agrees with each other. The cash went out of LinkedIn and never came back.

Looking closer into the balance sheet, I observed that linkedin is enthusiastically expanding its current assets as compared to its current liabilities.

If linkedin do not make cash, very soon the business would have to look around for acquisitions using  share swap. The worst case scenario would be raising cash from shareholders or diluting shareholders with preference shares.

Linkedin, Conclusion

It is a one of a kind company. There is no evidence, from its financial statements, to show that this company is making a return to shareholders. Hence, mathematically, it is a high risk and no returns company. By all means participate in this historical company. I said historical because it’ll make history, either like the dinosaurs or something mankind have yet to encounter.

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