Investors, and the media, have been so focused on the accounting of Noble Group that they're missing the trouble facing the company - which, by the way, is clearly stated in its books.
The commodities trader is seeing its margins shrink as the prices of the products it sells drop.
The group, which has its headquarters in Hong Kong, moved 205.8 million tonnes of various commodities and earned revenue of US$53.7 billion (S$76.5 billion) in the nine months ended Sept 30, its third-quarter report shows.
That's an almost 44 per cent increase in volumes and a 17 per cent decrease in the amount of money its sales generated.
In the same period, Noble generated operating income of US$3.74 per tonne, less than half what it did a year earlier.
The amount of short-term financing Noble uses for every dollar of income is growing fast. That shouldn't come as a surprise.
The commodities Noble sells are costing a lot less, which means it needs to move more of them around to make the same amount of money. And while its gross margins are increasing, higher volumes entail more transportation and administrative costs, and these things add up.
It tends to show in how much Noble has tied up in working capital. As at Sept 30, the company had US$198 in working capital for every dollar it earned in the third quarter. That compares with US$46 just six months earlier.
Noble has been mitigating this effect by managing its working capital better - making sure, for one, it gets paid faster, which is known in accounting speak as reducing trade receivables.
Yet to fund the increased volumes, Noble is adding on the liability side. Its short-term bank borrowings rose to US$2.51 billion as of Sept 30, from US$440.1 million at the end of 2014.
Considering Noble's credit default swaps are the most expensive in Asia, it's fair to assume that borrowing money will get more expensive for the company, and that could eat further into margins.
Then there are the perils of being a middleman when the market is in free fall.
Buyers have more bargaining power and sellers can't squeeze much further without going bust. And when Noble's suppliers go bankrupt, that equates to a loss, since these companies would probably default on their delivery contracts.
To be fair, Noble isn't alone in its malaise. Trafigura Beheer said in December that its trading volumes had increased 17 per cent for the year ended Sept 30 while its revenues dropped 23 per cent.
Whether Noble will find itself in that large and well-financed bracket will become clearer after it refinances some US$2.1 billion of loans due in April and May.
Or perhaps chairman Richard Elman has already come to terms with the idea that the company he founded will migrate towards the latter category.
Noble has already jettisoned its money-losing agri business and scaled back some of its mining operations. And Mr Elman did, after all, tell Reuters last month that he sees Noble's future as a smaller, more nimble group.
If that's the case, then Noble would do well to stop trying to trade greater amounts at every opportunity and instead sharpen its focus. Making money from commodities is an ever-tougher gig and these days, selling smarter counts for more than sheer scale.
BLOOMBERG
•This column does not necessarily reflect the opinion of Bloomberg and its owners.
