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Accounting for beginners

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Also this is interesting on 2014 report it shows
Gains from purchase of subsidiary with the amount of $0 but why isn't it showing this component on year 2015 annual report?

I think this is a top companies all top qualities and been outperforming the market for over 10 years. Their investment strategy is very sound. Major risk would be though change in leadership because then research methods and **** might change. As long as the people currently running it are there I think its a good investment. Unless of course someone better comes along.

Also I would definitely not go through all of their holdings too much work this is the sort of company which I sorta would have faith in that will do well bit of speculation I guess lol. At the end of the day they look for certain things in companies for example high roe, low debt etc and will invest in companies only if they meet this criteria. So instead of me doing all that work they are doing so I don't see point in it.
 

It might very well be a great company. But no one can know its current value for sure unless they look into each of the holdings' books to know its value, then work back to consolidate and average out WAM's holdings etc.

Track record and Geoff Wilson and his team's ability... maybe they're good. As a general rule though, might want to follow Buffett's advise and buy into a business any idiot can run. The business lasts longer than any CEO; and a great business can stand a couple of idiot's mistakes when one or two will eventually run it.

Just my two cents man.
 
Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?
 
RandomInvestor said:
Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?
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If you're looking to find value yourself and not rely on other fund managers, then the only benefit you can get from an LIC (listed investment company) is to figure out the value of their underlying assets (e.g. market value of each of their holdings), which is usually outlined in their NTA anyway. That way, you can buy assets at a discount (sometimes)

As an example, TOP trades at a small discount to Net Tangible assets. That's not to say it's a bargain, but it may or may not be an opportunity for further investigation.

Then you also have the chance that they trade below NTA AND that their assets are undervalued. In that case, you get the revaluation of underlying assets and confidence in the fund manager grows, so they trade at a premium to NTA. Not common, but it's possible.


Another situation worth bringing to light - PMV hold a large stake in Breville (BRG). They list this at their purchase price, rather than adjusting it to market value. If you crudely valued PMV on a simple P/E ratio, it looks pricey. But after adjusting for BRG and their cash holdings, it's a different story.
Anyway, just wanted to point out that it's not just LICs that have marketable securities on their balance sheets.
 
RandomInvestor said:
Ah ok when you say look at their holdings are you saying to do a full indepth review of those companies?
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It would be a good idea, I think.

When we look at a company's financials, we try to figure out the underlying value of assets. For certain businesses and with different calibre of managerial luck and talent, asset size might not matter, it's how you use it i.e. some business are capital intensive and return at x is quite reasonable; some business does not need much capital to earn quite well; some have massive amount of capital invested in it, but earnings are currently poor because... say, bad management, dying industry, suffering a downturn.

Reading the financials give a pretty good idea of what's what with the company; also gain some insight into its probably future performance.

So when you analyse a company that own a minor fraction of a bunch of other companies, like WAM's various LICs, to have a sensible idea of what it's worth require you to know each and everyone of its holdings, or at least a good idea of the significant ones.

If WAM pay dividends, where are those dividends coming from? The dividends of its holdings? I'd imagine that's the only way it can pay dividends... unless it's one open-ended fund of some sort that take new investor's money in and...

In short, it's a lot tougher to value these kind of businesses. That and you got to know its structure, where and how does it pay its dividends is a biggie. Know how it measure its performance.

As Buffett says, stick to companies you can understand. To understand LICs mean you need to understand all its holdings... which is possible, but not as easy as simply looking at WAM's reported financials.
 
Yeah the nta is included in their annual report but not really sure what they mean't by it.
 
Ah ok thanks.
 
RandomInvestor said:
Yeah the nta is included in their annual report but not really sure what they mean't by it.
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NTA stands for "Net Tangible Assets". It's the dollar value of the assets that they own, net of any debt.

Generally for listed investment companies, they value these at market value as we described earlier, by using the "Fair value adjustment" on the Income Statement.

Also a standard practice - they quote NTA on a per share basis. This basically means that each share has this value of assets behind it. For example, if the company was worth $2m, 1m shares on issue and they had $1m in assets, you'd get:

Share price = market value / number of shares
= $2m / 1m
= $2 per share

NTA per share = Net Tangible Assets (in total) / number of shares
= $1m / 1m
= $1 of net tangible assets per share


I should also mention the 'tangible' part. When they say this, they generally mean not including goodwill, brand names, customer contracts, software, or anything else that can be described as an intangible asset.
 
Ah ok thanks man.
 
Hey I wanted to ask as I am going through wam capital I notice on their 2016 annual report for example it shows "statement of comprehensive income" but on 2013 it says "consolidated statement of comprehensive income" how can I extract it so its just from 1 entity? because all my data is going to be mixed otherwise.
 
New member, not sure of the power of this to me currently, but in the near future see this being extremely helpful to helping me remain objective in my trading. Thanks for creating this for us to use.

 
lukeamac said:
New member, not sure of the power of this to me currently, but in the near future see this being extremely helpful to helping me remain objective in my trading. Thanks for creating this for us to use.
Click to expand...

You welcome Lukeamac. But I don't think it's suitable for daytrading if by that we mean trading in and out in days or weeks.

The app will get you to really know the business, and once you know it well enough, there really is no reason why you can't take advantage of big wild swings about your estimated value range.

The software does take a lot of getting used to. It's not one of those where you open the packet and know exactly how it works. So let me know if you have any questions about anything.

Thanks
 
Hey guys question I just realized A2milk has NO income statement except for the year 2010 how the hell is this possible? There is only comprehensive income.
 
Also having another problem trying to get return on assets ratio I did net income / total assets and I get these figures for these years:

2016 : 0.14

2015 : -0.02

2014 : 1.30

2013 : 0.05

2012 : 0.09

2011 : 0.06

I guess I am supposed to multiply it by 100 at the end? Even so all these websites are saying A2milk has a ROA of around 20% in year 2016. If I multiply by 100 I would get 14 don't know which one is correct.
 

Yea you multiply 100 to get a %. That format you have there is a ratio.

When in doubt, go for the lower figure. i.e. be conservative.

Returns, earnings etc. are different depending on what was used and how they're defined. So earnings... does the database define it as net profit [i.e. after tax, interest ect.], net profit as reported or net profit from continued operation only.


Was reading a bio on Rupert Murdoch and his News Corporation. One of the thing the authors pointed out was that, quoting some accounting professor, all earnings/profits are opinions. i.e. the judgement, assumptions of management regarding revenue being paid or not, what's an expense and what's an investment deferred, what's consolidated etc. etc.

These are often done by managers to fool both the investor, the taxman and their compensation committee. Hence, also look at its statement of cash flows, pay attention to the operating cash.
 
Hey guys how do you find the equity per share there is almost nothing about it on Google. This is only useful link I found:

http://www.naxs.se/en/private-equity/Glossary/eget-kapital-per-aktie/

The other closest thing is Book value per share not sure if its same thing. I am asking because I am reading Roger Montgomeries Value able book looking at the intrinsic value formula and it says get the equity per share but can't find anything on it. What I did (not sure if its correct) is get the total equity of Jb hi fi for example which is 872.8m and divide it by total outstanding shares which is 114.42 gives me 7.62. Not sure if this is correct, also the book is says get the shares on issue not shares outstanding but I can't find anything about shares on issue either, is this same thing?

Forgot to include this is the resource I got the equity from

https://au.investing.com/equities/jb-hi-fi-balance-sheet not sure if I included too many things. Like if I was just supposed to add the common stock not the entire equity. Thanks
 
Hey guys I have a question I am reading a book called its earnings that count as it talks about making a defensive income statement and a enterprising income statement and it says this:

In 2002 Wrigley spent $216.9 million on additions to property, plant, and equipment. Its depreciation charge, meanwhile, was $85.6 million. Thus, Wrigley made a $131.3 million investment in fixed capital. This use of cash is an expense in the defensive income statement.

For a2milk is the correct steps to getting this data?

First this part "216.9 million on additions to property, plant, and equipment" is that this part in a2milk cash flow statement? "Payment for property, plant & equipment" then it says"Its depreciation charge, meanwhile, was $85.6 million" does this relate to this item on the balance sheet? "Depreciation/amortisation" But its confusing because page 39 on the 2016 annual report here: https://thea2milkcompany.com/wp-content/uploads/A2ML0029-a2-2016-AR_Spreads.pdf there are 2 depreciation values. One of left and right. Then for the final part "Wrigley made a $131.3 million investment in fixed capital" I can't find anything relating to fixed capital except for this "Other intangible assets" this is all I could find.
 

So how and where do I send you my account details for payment?

Payment first, answer after?
 
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