February 20, 2024

Smart Fit and wigs in accounting

Written by Pedro Ceres

Today I want to talk about a situation Shorts (sold) to me. I will not doubt evaluationI will adhere to accounting practice and disclose incorrect information to shareholders.

It says SmartFit on file press release That DL (net debt) of the company is around R$750 million and Ebitda (earnings before interest, taxes, depreciation, and amortization) is just over R$1 billion. As a result, the DL/Ebitda multiplier is 0.7.

Even then, it would be purely arithmetical, were it not for the free interpretation of the accounting rule which guides the consideration of Leasing Working on the company’s debt. It’s not just in press release. It doesn’t appear anywhere in the presentation, not even some hidden asterisks on the slides.

To determine the disappearance of this part of the debt, you need to refer to the ITR (Quarterly Information Form). There, the most keen investor will find another R$3.5 billion in Leasing.

Consumption (non-cash) is not to pay debt. You need to pay the gym and equipment rent first. No rent, no open gym and therefore no income.

Thus, the correct approach would be to add R$750 million in net debt to R$3.5 billion in leases, with those liabilities rising to R$4.2 billion. Thus, we will have a real DL / Ebitda multiplier of more than 4 times against the previous modest 0.7.

Even worse, the debt is increasing. On the other hand, Ebitda is also present. We can therefore consider, for the purposes of the company’s mental exercise, that the gyms, which were empty during the pandemic, are now full. Therefore, it cannot grow further without opening more gyms which need more rent.

Incredible as it may sound, SmartFit adopts a cash accounting system. Did you sell more of the annual plan in the summer? All proceeds from the sale, all proceeds, go to Summer. And if the gym is full in the summer, that’s the maximum gym cash generation.

The only solution would be to sell more long-term plans, accelerate revenue today and contract future customer dissatisfaction with overcrowding.

All of this doesn’t even matter if the controller, the private equity firm that won’t be in the company long-term, doesn’t continually sell its stock position.

Note: This is not a scam, not a scam. It’s just a story that everyone involved knows but prefers not to comment on. After all, it’s just a creative form of accounting.

I didn’t trust Ikki because he was wearing a wig. If you’re lying about your hair, you’re lying about everything. Whoever lies in accounting wears a wig with numbers.

CVM (Comissão de Valores Mobiliários) must fight this kind of resources vigorously. This spoils the basis of people’s confidence in the financial market.

If you are still in doubt, explain to me how a net debt of R$700m generates R$700m of financial expenses. Either you pay 100% interest or the debt is greater.