When cash flows should include ‘non-cash flows’

The problem with cash flow statements is that … they only include cash flows. This may seem odd, given that the purpose of cash flow statements is simply to report cash movements. However, most cash flow analysis is focused on sub-totals and it is here that offsetting flows arising from non-cash transactions become important.

We explain why we believe adjustments to cash flow sub-totals are required and for which transactions you should adjust.

Continue reading “When cash flows should include ‘non-cash flows’”

Enterprise value – calculation and mis-calculation

Valuation methods based on enterprise value have become the benchmark in equity valuation. Most of you will have analysed equity investments using valuation multiples based on enterprise value or used absolute valuation methods to derive an enterprise value.  

In simplistic terms enterprise value is market capitalisation plus net debt; but is that good enough? In many situations we think not.  We review the key building blocks of enterprise value to assist you in deriving relevant valuation metrics.

Continue reading “Enterprise value – calculation and mis-calculation”

Leasing transition options – Air France KLM

In 2019 you will see a significant change in the financial statements of many companies due to the adoption of IFRS 16 on lease accounting. In addition to understanding the new accounting, it is also important that investors are aware of the transition options selected by companies and their impact.

We explain how IFRS 16 transition works and the impact transition options will have on key metrics. Early adopter Air France KLM has already selected the full retrospective approach; we examine some of the effects on its financial statements.

Continue reading “Leasing transition options – Air France KLM”

IFRS 15 revenue recognition may impact forecast growth

For some companies the change in revenue recognition due to the adoption of IFRS 15 in 2018 has resulted in a material change in reported revenue and profit. However, your analysis needs to go beyond the transition effect and also consider the impact on future growth.

We illustrate how your forecast of profit growth can be impacted using a simple interactive model.

Continue reading “IFRS 15 revenue recognition may impact forecast growth”

Not so ‘prudent’ actuarial values – BAE Systems

The valuation of pension obligations can be an important component in determining the value of an equity investment. But should you include in your analysis the pension surplus or deficit based on the accounting liability or, as some argue, the lower actuarial ‘funding’ valuation?

It is all about the discount rate. The problem is that there are very different opinions about the appropriate rate for pension obligations and what measurement approach is most relevant for investors. We examine a view expressed by many, including BAE Systems.

Continue reading “Not so ‘prudent’ actuarial values – BAE Systems”