Current or non-current liabilties?

Turns out, the difference is important. Allco Finance Group, who've been in the news of late, issued financial statements with just under $2billion of liabilities classified as non-current, when they should have been current. Elizabeth Knight argues that they company and it's auditor (KPMG) should have been slightly more forthcoming about 'correcting the record'. She refers to both audit and non-audit fees paid to KPMG; two things often said to be associated with auditor independence.

Who's to blame?

Michael West summarises the gnashing of teeth about the current 'meltdown'.

Key paragraph:

There is a pattern to these implosions. Every company - Centro, Allco, MFS and now ABC Learning - have five things in common: greed, leverage, risk, suspect corporate governance and complex corporate structures.

and also:

Moreover, on transparency, we won't hear too much from the ASX as it has made a mockery of transparency by kowtowing to the big investment bank clients and making the broker identities on its own trading system anonymous. Its own disclosure is not good enough.

To ASIC, the corporate watchdog; both its bite and bark are small.

There's a book in the reasons why but one is cultural. The SEC in the US is a far more rigorous sheriff.

Let's see how much changes.

Meeting analyst forecasts

Is still considered important. Here's a report about QBE who missed analyst forecast in their recent half yearly profit announcements. Share price dropped, as is usually the case.

Continuous Disclosure

Lots of continuous disclosure matters around at the moment:
Allco Finance

Also ABC Learning - and the issue of disclosure of short selling.

In short, there are plenty of complaints that the continuous disclosure regime isn't doing what it's meant to be doing. This is on top of allegations that the ASX shouldn't be acting as a profit making enterprise as well as having a monitoring and regulatory role. Here's a piece by Bryan Frith that argues against a knee-jerk reaction in stripping the ASX of its regulatory role.

ABC Learning

Some analysis of ABC Learning, which seemed to have a bad day yesterday. And today.

Forecasting

Involves trying to work out what will happen in the future - a good starting point is to work out how things might change from what you currently observe. Here's an article that describes how analysts expect earnings to decline going forward.

John Durie highlights the problems in going from profits (largely capturing what has happened) to market price (capturing what the market expects to happen).

CORPORATE Australia is in a lot better shape than the stock market would indicate, but then that's due in part to the fact that the market is trying to predict a very uncertain future and that the profit results are yesterday's news.

Certainly, the numbers from high-profile companies released over the past week have done much to calm nerves, as shown by the dramatic turnaround in Wesfarmers' stock price yesterday from a 2.7 per cent fall to a 5.3 per cent rise in a matter of minutes after the release of its results.

It's good to be 3?

We're in reporting season at the moment, so lots of stories about companies' financial results. Here's one from 3 - note in particular how the company refers not only to various accounting measures: total loss, revenue, EBIT, but also non-financial numbers (like total customers and churn rate). It's how you analyse all of these factors that impact on your forecasts for such a company going forward.

Investing

The bottom line of this article is perhaps the most important.

MAKE sure you understand what you are investing in. If you don't, don't touch it.

That's pretty much what we try and convey in the Business Analysis week of the FSA course.

Insider trading

Apparently it happens on the ASX. Who'd a thunk it? So, how to make money if you're trading against insiders? Invest in Index funds or stocks, or be very careful if you're 'day trading'.

Off Balance Sheet Liabilities - the banks

Adele Ferguson in the Oz has a nice back page article on the extent of the off-balance sheet activities(typically exposure to derivatives) of the major banks. It's one of the reasons why the banks are especially hard to value using financial statement data alone.

Why do a buyback?

It's one way for managers to 'put their money where their mouth is'. Managers often say that the market undervalues their shares. Offering to buy back the shares gives a pretty clear signal of what managers think they're worth.

Here's Boral's buyback, recently announced.

Reporting season

It's half yearly reporting season, so plenty of articles about focusing on company profits. Note that most of these articles are going to compare actual profits with forecast profits, where the forecasts are based on what analysts anticipate.

Here's an example:
Coca Cola (The Australian)

Note also the use of 'pro forma' profits being used by managers. Pro forma earnings are GAAP earnings (i.e., determined in accordance with the accounting rules) with some adjustments. Usually the adjustments make the pro forma profit higher than the GAAP profit. Cochlear is an example.

Does the way you report a profit matter?

If you're a shareholder in the Commonwealth Bank (CBA), the answer seems to be yes. They announced yesterday that they would be coming into line with their peers and excluding from profit unrealised gains and losses on derivative securities used for hedging. This resulted in a big sell-off, on the expectation that CBA were sitting on big losses from their derivatives. Richard Gluyas reports in The Australian.

Turns out that CBA is sitting on a small unrealised profit, not loss. And the shares jumped back up.

Part of the problem is the lack of guidance in the accounting standards. From the first linked article:

Chief financial officer David Craig said in the announcement that the bank had examined the definition of cash net profit after tax used by its industry peers and analysts, given that accounting standards provided no guide on the components that should be included.

CBA, he said, had decided to adopt "emerging industry practice", excluding unrealised gains and losses on derivatives used for hedging purposes.