Economic Rigor

Was surprised to see the announcement yesterday that SEEK was "seeking"  to issue debt in the form of subordinated notes. Reasons? 1. I.T companies are usually high risk so demand for debt issues would be pretty low. These sort of companies are usually funded by equity rather than debt 2. The price (5-5.5%+Swap rate) is pretty generous for debt. You are looking at potential yields of 9% or so (which is more that equity at the moment) So I decided to put my financial analyst hat on and go looking into the Annual report of SEEK for 2011. A few things found 1. Not a big fan of how SEEK put "Share of profits of associates and jointly controlled entities accounted for using the equity method" straight into the front part of the Consolidated income statement. Under IFRS, I thought that this should go into the "Other Comprehensive Income" section. I believe this addition over inflates the Net Profit after tax figure. If y...

Impressive figures for GDP. So why are people complaining that times are tough? Well when you look at the state final demand since 1985, you can see that the two most populous states aren't going the best. Pretty much illustrates the "two speed economy" Its all WA and QLD baby!

Having a bit of interest in the sustainability business world, I've been looking at the Annual Report of Co2 Group, Australia's largest Carbon Offset provider (and one of the few that are listed). One thing I have been curious about is how they have been recording increased revenues in their Statement of Financial Performance but the cash flows from the cash flow statement haven't quite been meeting up. Specifically, how in the last year, their operating cash flow/Net income ratio was below 1. Based on my CFA Level 1 studies, this is usually a sign of aggressive accounting policies and/or earnings manipulation. Now, I am not about to accuse CO2 of that, but I delved a little deeper into the 2011 annual report and found these two items in the notes (ii) Project revenue Carbon sink project revenue is recognised in proportion to the work performed in relation to the product development and the various stages of completion of the carbon sinks. Work performed that has n...

I was reading an article the other day about solar power and how a lobby group for this power industry was saying that PV power had obtained grid parity in Australia (i.e it was now the same price to add Solar Power to the grid as it was for Coal power). This was obviously a ridiculous statement in my opinion (coal power in Australia is the cheapest there is at the wholesale level), but there was another question when it is put as "socket parity". i.e is it as cheap for the consumer to put solar cells on their roof and have a reduction in their power bills as it is to just keep on buying power from the major suppliers. It's obviously an interesting question, but impossible to answer without knowing what the Weighted Average Cost of Capital (WACC) is for the average household in Australia. The reason we need to know this value is so we can discount the future cash flows of the savings in power to see if these cash flows in the future do in fact exceed the Present value o...

Not bad...Goatameter is 3 for 4 since March! (though I missed the really good one) Sensible decision by the Reserve in my opinion.

It's that time again. The Goat-a-meter is still leaning towards the negatives...if anything, negative sentiment has increased since last month. Inflation expectations are not high, and while employment is holding up, the financial markets and the world economy are not not looking good. However, I do believe it will be only a 0.25% decrease, rather than the 0.50% being bandied about by the punters.One would hope the reserve has learned it's lesson after last month. We will see.