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PR Newswire
01-07-2014, 06:03 PM
Associate earnings without cash returns is as good as nothing since these are just non-cash charges to the P&L but to have a clearer picture will depend on several factors:
- how long has the associate/JV been operating? If it's in the early stages, it means it will need a few more years before you can see cash returns.
- if it has been operating for a while (i.e. more than 5 years), then you should try to understand what is holding them back from getting the cash dividends. (i.e. associate needs cash to expand?). Logically, parent co should want to enjoy some form of cash returns else this is a bad investment.
- associate & JVs could also be a good way for management/majority shareholder to move money out of the company without sharing it with opmi. Do you see the parent co keep making substantial investment in the associate? Either way, a business is bad if it needs external capital all the time.
- on the parent co, how much of associate earnings does it attribute to consolidated bottom line? If it's significant and there is nil cash returns, then it will be conservative to adjust it out.
- how long has the associate/JV been operating? If it's in the early stages, it means it will need a few more years before you can see cash returns.
- if it has been operating for a while (i.e. more than 5 years), then you should try to understand what is holding them back from getting the cash dividends. (i.e. associate needs cash to expand?). Logically, parent co should want to enjoy some form of cash returns else this is a bad investment.
- associate & JVs could also be a good way for management/majority shareholder to move money out of the company without sharing it with opmi. Do you see the parent co keep making substantial investment in the associate? Either way, a business is bad if it needs external capital all the time.
- on the parent co, how much of associate earnings does it attribute to consolidated bottom line? If it's significant and there is nil cash returns, then it will be conservative to adjust it out.
"Criticism is the fertilizer of learning." - Sir John Templeton