1/
In 2001, I arrived in the UK eager to look at leading global companies
One was GE, led by the late Jack Welch, who had just published a book, “Jack: Straight from the gut” about his “career running one of the largest and most successful corporations”
The stock sold at
In 2001, I arrived in the UK eager to look at leading global companies
One was GE, led by the late Jack Welch, who had just published a book, “Jack: Straight from the gut” about his “career running one of the largest and most successful corporations”
The stock sold at
2/
15x earnings - seemed fair value for a “wonderful business run by brilliant management"
Cash from operating activities of $32bn less capex for equipment of $15bn = free cash flow of $16bn
(although we didn’t talk about free cash flow back then)
ROE was 27%
15x earnings - seemed fair value for a “wonderful business run by brilliant management"
Cash from operating activities of $32bn less capex for equipment of $15bn = free cash flow of $16bn
(although we didn’t talk about free cash flow back then)
ROE was 27%
3/
And a payout ratio of 50%
I could use the historic EPS trajectory as a ruler – linear growth of 15% p/a and on track for $11 per share
maybe there was something to this Sustainable Growth Rate (SGR) formula
But then I looked at the balance sheet
And a payout ratio of 50%
I could use the historic EPS trajectory as a ruler – linear growth of 15% p/a and on track for $11 per share
maybe there was something to this Sustainable Growth Rate (SGR) formula
But then I looked at the balance sheet
4/
And saw $80bn in “All other assets”
Back when $80bn was a big number
Refer note 17
Which revealed only ½ a page of numbers totalling… $80bn
including 3 more “Others” = $14bn
oh yes, and “advances to associated companies which are non-controlled,
And saw $80bn in “All other assets”
Back when $80bn was a big number
Refer note 17
Which revealed only ½ a page of numbers totalling… $80bn
including 3 more “Others” = $14bn
oh yes, and “advances to associated companies which are non-controlled,
5/
non-consolidated equity investments” of $14bn
But equity was only $54bn, so $80bn is material
How can it only be ½ a page of numbers without any detail?
But look at the cash flow, Sean
Ah, but in my auditing days (and when auditors could still do this), I had the
non-consolidated equity investments” of $14bn
But equity was only $54bn, so $80bn is material
How can it only be ½ a page of numbers without any detail?
But look at the cash flow, Sean
Ah, but in my auditing days (and when auditors could still do this), I had the
6/
unenviable task of compiling the Consolidated Cash Flow Statement for a large group with international subsidiaries
I was told it was a bit “beyond the accountant”
well in truth it was more than a bit “beyond me”
but after a few sleepless nights (and camomile tea
unenviable task of compiling the Consolidated Cash Flow Statement for a large group with international subsidiaries
I was told it was a bit “beyond the accountant”
well in truth it was more than a bit “beyond me”
but after a few sleepless nights (and camomile tea
10/
to help the stress)
it somehow balanced
And I learned that a cash flow statement is the link between the income statement & the balance sheet
And if you can’t trust a balance sheet, don’t waste your time on the cash flow
I never bought GE
to help the stress)
it somehow balanced
And I learned that a cash flow statement is the link between the income statement & the balance sheet
And if you can’t trust a balance sheet, don’t waste your time on the cash flow
I never bought GE
11/
And 20 years later after endless restructuring and > $50bn of write-offs, shareholders equity is only $37bn
the share price has halved
and $11 of EPS is a dream
Might as well ditch the SGR formula
So what's your point ?
And 20 years later after endless restructuring and > $50bn of write-offs, shareholders equity is only $37bn
the share price has halved
and $11 of EPS is a dream
Might as well ditch the SGR formula
So what's your point ?
12/
Chinese Tech specialise in big numbers on the balance sheet with very little detail
BABA has $56bn in “Goodwill & intangibles” and $15bn in “Prepayments, receivables and other assets”
“Tradenames, trademarks and domain names” increased by RMB13bn ($2bn) last year?
What?
Chinese Tech specialise in big numbers on the balance sheet with very little detail
BABA has $56bn in “Goodwill & intangibles” and $15bn in “Prepayments, receivables and other assets”
“Tradenames, trademarks and domain names” increased by RMB13bn ($2bn) last year?
What?
13/
I can register a trademark for £395 in the UK & a GoDaddy domain name costs £1?
What on earth cost $2bn?
Tencent’s 30th June 2021 Semi-annual report Balance sheet disclosed:
Intangible assets of RMB 162bn ($25bn) but no note
Only 3 notes (8,9,10) covered RMB 1.186trn
I can register a trademark for £395 in the UK & a GoDaddy domain name costs £1?
What on earth cost $2bn?
Tencent’s 30th June 2021 Semi-annual report Balance sheet disclosed:
Intangible assets of RMB 162bn ($25bn) but no note
Only 3 notes (8,9,10) covered RMB 1.186trn
14/
($184bn) of non-current assets
Barely 4 pages about their investments with no comprehensive list of:
-the names or
-number of shares held or
-prices / PE multiples at which they are valued at
nothing
Just 4 pages with some big numbers and scant detail
($184bn) of non-current assets
Barely 4 pages about their investments with no comprehensive list of:
-the names or
-number of shares held or
-prices / PE multiples at which they are valued at
nothing
Just 4 pages with some big numbers and scant detail
15/
and rising debt levels
Camomile tea might not be enough when these stocks really unravel
and rising debt levels
Camomile tea might not be enough when these stocks really unravel
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