Meanbugger
24 Jan 2018
Re: Investors were misled FWIW I think numberbiter is justifiably feeling very sore and is blaming the accounting and Carillion's weak balance sheet. However I think when looking at an investment you must first look at the overall business. Is it a good business to be in with prospects of increased profitability and genuine creation of shareholder value. For me Carillion with its construction activities in Qatar and large low-margin contracts would have failed on this basic question. Numberbiter says 'If cash inflow from operating income' (cash flow statement) is lower than 'net income' (Income Statement) DON'T INVEST and if already invested SELL.' I think this is being over-cautious. You must look at the reasons behind the balance sheet absorbing cash. A growing company is likely to need more working capital. Investors should look at that growth, is it worthwhile or in Carillion's case just chasing contracts to squeeze cash out of sub-contractors. I think some of the best investment opportunities actually are when the balance sheet and cashflow weaken because of an upturn in business, launching new products etc.The key to successful investment is to back successful companies who can exploit their marketplace to make good and growing returns for shareholders. Fixed rules like numberbiter's may actually see you missing out on a ten-bagger if everything else is pointing in the right direction. At the end of the day investors have to do their research and particularly read the notes to the accounts to try and glean as much information as possible to form their investment decision. Making money from shares isn't easy but it's a lot better than working for a living.
FRTEB
23 Jan 2018
Re: Investors were misled Thanks, yes, I assumed that would be the case. Been backtesting the figures this afternoon for CLLN and a few others. ...Making a couple of permanent changes to Ye Olde spreadsheet.To anyone reading this then FWIW I think numberbiter's suggestions earlier in this discussion are well worth implementing as part of your own company analysis (thanks again numberbiter).
U1
23 Jan 2018
Re: Investors were misled Goodwill is an intangible asset and should also be taken with a pinch of salt. In a past life I worked up estimated outcome statements for insolvency practitioners. Zero value applied to goodwill, intangible assets, (most) office equipment, (most) vehicles (usually leased), other debtors, prepayments, etc. Only real value was in trade debtors (60% recoveries), stock (20% recoveries but none for WIP) and property (80% recoveries). Some value for P&M but a total lottery.All just in my opinion and experience. Balance sheet strength is key. Second is cash from ops.
FRTEB
23 Jan 2018
Re: Investors were misled " I also know that if you take intangible assets out of the Balance Sheet and it goes negative, it is a sign the company is struggling. " Out of interest, what are your thoughts about goodwill on the Balance Sheet?
numberbiter
23 Jan 2018
Re: Investors were misled JW, I admit that I said that Carillion was too big to fail. I knew and said that the company was bankrupt, but thought that the government would nationalise the company, by paying 1p per share. This would have been the best option for the government; as things stand the government contracts that Carillion cannot fulfil will have to be renegotiated and higher prices. Add this to failing subsidiary businesses and the additional benefits that will be paid out the cost to the taxpayer will exceed £1 billion.Of course I understand the difference between operational cash flow and financing cash flow, I also understand that 'intangible assets' have absolutely no value unless they are generating profitable future business. I also know that if you take intangible assets out of the Balance Sheet and it goes negative, it is a sign the company is struggling. Add in the deficit on the pension scheme and you are looking at a weak company.For example, if you look at KIer Group's Balance Sheet, you will see it is not good, but the 'market' has not worked it out yet!The 'market' is in many ways is irrational and bad for business. For example, Melrose's bid for GKN will force this company to expend a fortune in professional fees that would be better spent pumping money into their pension scheme.
Are Kid
23 Jan 2018
Re: Investors were misled I feel totally misled - PONZI scheme, i.e. take money from investors and use it to fund dividends which those taking the money would surely have had sufficient knowledge to know was an unjustified and/or sustainable return. I'm no expert and this is my simple opinion, However I'm going to complaint to International Accounting Standards Board for one and if there's a class action against the Auditors I'm on board with that as well Shocking, but expected in the greed based system we operate within unfortunately. Just my own opinion of course.
II Editor
23 Jan 2018
NEW ARTICLE: Stockwatch: The mother of all short squeezes? "Is the £3 billion online grocery/technology stock LSE:OCDO:Ocado to be squeezed even higher as short sellers feel pain? This week has brought news of a second international technology/warehousing deal - with Canada's second-largest retailer ..."[link]
LifeInPlastic
22 Jan 2018
Re: Investors were misled I wonder what the shareholding profile was at the death. I'd be extremely surprised if it were only "naive" private investors who did not heed the warning signs.Likelihood of any successful class action against KPMG is practically zero imo. That doesn't mean that I think the audit profession does not need a serious kick up the backside. Making the audit report even longer after every major crisis is not good enough. What is the point of professional indemnity insurance if they are never, ever held liable in situations like this one?
Dictum de dicto
22 Jan 2018
Re: Investors were misled Interesting comments.However, if on March 1st 2017 the auditors were prepared to sign-off on Carillion:1) What chance would the average outsider have of coming to a different conculsion? You could argue that the hedge funds had a better view but they ultimately speculate based on public data.2) Why would the average investor believe an outsider vs. an audit insider and HMG?Agreed about IFRS. The accounting world lost the plot years ago.I'm waiting for the first class action against KPMG. It's no good ticking boxes on the small stuff when you are prepared to look through the major uncertainties. Also, given that the internal auditors probably dealt with the tick box stuff why didn't KPMG spend some serious time on the off balance sheet aspects and unorthodox funding routes? Shouldn't they have had a lot more to say about Qatar and the cashflow challenges.I would have thought that the impact of delays to cashflow would have been recorded as a risk in itself on p32. Nope...and no comments from KPMG.Disgraceful.
J Westlock
22 Jan 2018
Re: Investors were misled numberbiter,"I am accountant who is a strong Remainer, but I would happily change to being a 'Leaver' if as a result we scrapped IFRS accounting and went back to UK GAAP accounting."If you're really an Accountant capable of reading & understanding all the financial statements then it would be disappointing if you didn't recognise the difference between operating cash flow and financing cash flow.I note that you were still saying in late November:"As I have said many times I believe Carillion is too big to fail".What you're referring to is in Section 20 "Trade and other payables"... it isn't hidden away, the £760.5m figure is in plain view for any decent Accountant to see:[link] under IFRS or UK GAAP accounting most punters wouldn't have a clue about that and wouldn't have stopped them being caught out by the November crash. It's disappointing that the financial pundits and press following this company were equally woefully lacking in their understanding of this company's sad financials and that's a big lesson too.
FRTEB
21 Jan 2018
Re: Investors were misled deepsleeves No need to apologise. Saying it how it is works for me, as uncomfortable as it might be to read! Out of interest, which ITs do you hold, if you don't mind me asking?Bill
deepsleeves
21 Jan 2018
Re: Investors were misled FRTEBSorry to be shocking and perhaps to make it worse it does seem to be particularly prevalent in UK businessI have stuck with a limited number of investment but try to understand how they operateThis doesn't always work but CNA, currently my worst investment is a self inflicted wound as I new what a dreadful operating model they had but invested anyway...Outside of the mega caps such as HSBA RDSB VOD etc. I focus on cash and in particular on FCF to dividend cover. That ratio served me well back in 2013 when I got out of CLLNI do now have 3 IT holdings which give geographical spread and diversification. Deep
FRTEB
20 Jan 2018
Re: Investors were misled deepsleeves That's a good post but I find the following statement quite shocking: " As an accountant it is sad but true that the rubbish insisted upon in company accounts by both goverments and accountancy institutes seems designed to hide anything approaching the truth. " On that basis it seems the only chance we have of avoiding being wiped out is to massively diversify across sectors and within sectors, not to mention geographically. I started out by trying to keep the maximum number of holdings below a certain figure but as time went on I ended up smashing through that max number as opportunities presented themselves. I had been increasingly thinking that I really needed to reduce but after CLLN I'm sticking with the current number of holdings and might increase further in due course. On the one hand it's more difficult to keep track of things but on the other hand if things go badly wrong it isn't as painful as it could have been. Never easy is it?
deepsleeves
20 Jan 2018
Re: Investors were misled As an accountant it is sad but true that the rubbish insisted upon in company accounts by both goverments and accountancy institutes seems designed to hide anything approaching the truth.The only fact that auditors could possibly get correct in a companies accounts is the "cash at bank" figure and I am not sure that even that is not beyond most of them.Trust {almost] nothing said in published accounts.They only way to correct this wou;d be toA - insist on accounts no more than 10 pages - A4 and font size 11 [ sad but true that this would have to be specified]B - Ensure Audit firms are responsible for the contents of these accounts - in fact make them create themC - Prohibit liability insurance for partnersWe would pay much more but would get fewer, sensible financial figures. A swap worth doing in my opinionDeep
FRTEB
20 Jan 2018
Re: Investors were misled numberbiter Thank you. Some useful pointers there and I will be looking in more detail at the implications. I can already see the benefit of adding two new new columns to my company analysis spreadsheet (intangibles and other creditors) and performing more calculations. I should say in my defence that this spreadsheet has evolved over several years and has helped me buy shares in many companies - mostly quite successfully, and most of which I still hold. It has also helped me avoid buying countless other companies but Carillion slipped through the net unfortunately and I have to confess I was taken in hook, line and sinker by the directors' BS.Lupo di mare I read that BBC News article and recall reading the statement in the accounts suggesting 'no financial problems for three years'. This is exactly the kind of thing I am referring to when I said in my previous post that I feel I was conned. The directors should be locked up - for a long time I hope.
