I'm not sure my question is relevant to the thread but I thought people in this thread would have a thoughtful answer.
In Graham's book, he suggested looking at long term debt to working capital and total debt to net book value (NTA? Are those synonymous?). Net Book Value includes intangibles NTA doesn't.
I'm unsure how to take these metrics into my analyses. The obvious is that low debt is better but what about when the two metrics are very different?
What would having low long term debt to working capital but having high total debt to net assets mean in terms of interpretation? Not sure how this could happen - might be misinterpreting what you mean - got an example?
From my newbie guess, would it mean that they are highly leveraged but are able to manage their debts?
The distinction you need to make is between growth expenditure and "existing business maintenance" expenditure.
Existing business maintence expenditure is not discretionary - you either spend it or economically liquidate the existing business. Growth expenditure is discretionary - it could be returned to shareholders if it wasn't used to build the business.
I have no time before heading away for awhile - If it hasn't twigged or someone else hasn't helped out I'll take it up when I get back.
Cheers
Galumay
Have you made any progress on this topic? I'm a bit reluctant to post on TGR at the Moment.
Pg 8 Annual report might help.I havent craft, I have been busy with other research, but the quick look I had at the annual report I couldnt see those numbers broken down.
I link it with growth. If you are estimating revenue growth, then (depending on the business model) you will need to budget for this growth. Upon reaching maturity will allow you to find your sustainable level of maintenance capex.I guess thats something I am struggling with in general, how do you know when and how to break down elements of a FCFE model?
It's easier with Tassal and similar companies to thinking outside of a single year basis. Look at multi year periods.
If you want to understand the nature of the cash flow you'd need to figure out how this happened.
I recall their investor presentations being pretty helpful. Other than that I could only suggest that you'd need to understand how the industry works (what they need to spend funds on, and when it occurs in the cycle, also when the cash is received and what determines how much they receive).
I'm not so sure about that. Biological assets have almost doubled (ie. they're breeding a lot more fish than they're selling), debt has decreased and I'm sure they have spent a fair bit on new infrastructure assets over this period. Yet they've not needed to tap shareholders for this once during the period. If you want to understand the nature of the cash flow you'd need to figure out how this happened.
Return on assets increased from 9% to 12.5% over the same period.
I recall their investor presentations being pretty helpful. Other than that I could only suggest that you'd need to understand how the industry works (what they need to spend funds on, and when it occurs in the cycle, also when the cash is received and what determines how much they receive).
Net Book Value includes intangibles NTA doesn't.
Not sure how this could happen - might be misinterpreting what you mean - got an example?
Thanks craft. I finally have a but more clarity when reading analyses now.
I've been calculating debt/NTA because it makes logical sense to me since intangible assets won't help in repaying debt.
When looking at MND's latest half year report. My calculations show:
- Liabilities/NTA = 126%
- Long-term liabilities/WC = 7%
Am I doing something wrong?
When looking at MND's latest half year report. My calculations show:
- Liabilities/NTA = 126%
- Long-term liabilities/WC = 7%
Am I doing something wrong?
luutzu; said:Say MND bought a few companies, pay at price higher than the acquired asset's various assets' bookvalue... that is added to Goodwill right? So if the intangibles were to have a lot of goodwill, while it may really be as assume and be worth nothing but payment in excess of book... if the assets acquired were land or something that actually appreciates in value etc. etc.
???
Am I misreading your post or are you suggesting land can make up part of goodwill?
land is written at book value - the costs of purchase.
Was referring to when a company acquire another company. My understanding is that when the buyer, say MND, bought corp.X and pays above book value... that overpayment is classified as Goodwill. While on paper it may appear that MND new Goodwill is just intangible, it may be the case that MND, when valuing Corp.X, appraise the assets, say land, at the current value and that current value is above the bookvalue as appear on Corp.X's account.
So it could be the case that what is technically Goodwill and hence intangibles may not be so.
Say my company were to buy Xcorp. The land bank it has is $10M on its book. If it's reappraised now those land are now $20M say.
If I were to buy the land only and not the company, on my book value it'd be $20M; but if I buy the company, the land is $10 at book and $10 as goodwill.
Pretty sure that's how accounting define these, unless I'm wrong.
You're wrong.
Mind to elaborate to help me (us) out?
Another example to show what my take on Goodwill regarding acquisition is.
Say Xcorp is a timber company, and on its books are land it first purchased and the seeds it planted. All up, costs for land and seed was $10M. That was 100 years ago, since then Xcorp does nothing but water those seedlings into fine trees now. Assumes it has no other assets or liabilities, or whatever and so its net book value is $10M.
If my Ycorp bought Xcorp for $20M... How does Ycorp record this acquisition on its books? Additional $20M bookvalue or only $10M into book and the excess above book paid for Xcorp (another $10) is define as Goodwill?
I always thought that if you were to just buy the asset, then the bookvalue is $20M, but if you buy the company, then you must be conservative and either record bookvalue at cost or the lower of market, but never revise it up.
oh, by bookvalue above I mean the bookvalue of the land/property.
When you buy a company you get the real assets valued. This is the value that you transfer over to your balance sheet. The amount paid for the company over this valuation is goodwill.
Mind to elaborate to help me (us) out?
Another example to show what my take on Goodwill regarding acquisition is.
Say Xcorp is a timber company, and on its books are land it first purchased and the seeds it planted. All up, costs for land and seed was $10M. That was 100 years ago, since then Xcorp does nothing but water those seedlings into fine trees now. Assumes it has no other assets or liabilities, or whatever and so its net book value is $10M.
If my Ycorp bought Xcorp for $20M... How does Ycorp record this acquisition on its books? Additional $20M bookvalue or only $10M into book and the excess above book paid for Xcorp (another $10) is define as Goodwill?
I always thought that if you were to just buy the asset, then the bookvalue is $20M, but if you buy the company, then you must be conservative and either record bookvalue at cost or the lower of market, but never revise it up.
oh, by bookvalue above I mean the bookvalue of the land/property.
Business combination accounting requires all identifiable assets to be revaluated at current fair value as of the purchase date.
Refer AASB 3
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