Woolworths' fails to impress

Woolies' results indicate why you need to consider macro, as well as industry and firm-specific information when looking at ratios over time.

The effects of the stimulus package mean that future sales growth may not match recent growth, as per this report in the Herald suggests:

The percentage sales growth was, however, half the gains it recorded last year when, as Mr Luscombe put it, ''we had all the moons aligned'' - lower petrol prices and interest rates, the Federal Government's stimulus package and people choosing to shop for pricier food over eating out at restaurants.

Woolworths' argument is that retail sales grew at unsustainable rates last year thanks to the stimulus package, and that a two-year growth rate comparison is more valid. Its two-year sales growth average was 6.5 per cent.

Steven Mayne on the recent earnings results

In the Herald.

The ongoing debt problem

According to Adele Ferguson in The Australian,

CORPORATE Australia is sitting on a $200 billion debt bomb that needs to be refinanced over the next three years, with analysts warning some infrastructure and small companies will collapse under the mountain of debt.

EPS targets

EPS (Earnings per share) is a commonly cited performance measure. Trouble is, it doesn't tell us that much. Recently, CSL Ltd effectively tripled its earnings per share by undertaking a 3 for 1 share split. Nothing about the future performance (cash flow or overall earnings) changed. Paul Kerin points out how managers focused on increasing EPS can do two bad things: (1) undertake investments when they shouldn't, and (2) not undertake investments when they should. So, what's a better measure? Kerin argues that we should focus on "cash and strategic logic". If you're looking for an overall performance measure, then Return on Equity (ROE) or Return on Assets (ROA) are going to be better than EPS, or EPS growth.

Private equity - Michael Jensen's thoughts

Michael Jensen (Harvard Business School) has a set of slides available from SSRN concerning his thoughts on private equity: in short, he views it as part of a new model of management.

Slides at this link.

Strategy, financial analysis, credit crunch, and TPI

TPI's recent strategy has been driven by acquisitions. At the end of this year TPI have to refinance about $2.7bn of debt. Given recent events in the credit market, this could prove interesting. More from Adele Ferguson here. Key quote that backs up what we keep discussing in class:

The ride has been exciting, with the share price going on a roller-coaster ride, and profits going through the roof. But analysing a company that makes a lot of acquisitions is tough, particularly one that has reclassified some of its businesses into different divisions and created new divisions.

Profitability analysis - Ipod

Each time Apple releases a new Ipod, folks out there will tear it apart to work out the likely profits per unit. Here's the latest report in BusinessWeek. Nice business line, Apple!

Still good buying?

Tim Blue in the Weekend Australian thinks that there are still some good buying opportunities in the Australian share market. Some industry analysis with a focus on Price/Earnings ratios.