A Newbie Guide to Investing

[weijian]

Thanks yoyo and CF,

I think the classification matters. If we just take FCF as OCF - PPE, then those with fiancé expenses as operating cashflow would be "bigger than what it really is"

I was looking at what "sustainable dividends" or conservative dividends APTT could give by subtracting the capex for expansion for Taichung and discounting for its growth

So I guess my hunch feeling of subtracting it / not including it it OCF will give a more accurate picture of FCF

The input for valuation, is the "adjusted free cash flow", rather than OCF ex-PPE at face value in the financial report, isn't it?  

If part of the investing activities are recurring, i.e. part of the core operation, than it should also included into the "adjusted FCF" too, IMO.

For example, both SAT/SIAEC classify the dividends that they receive from JV/Associates in the 'investing' segment of the CF statement. This amount is substantial wrt their operating cashflow and should be accounted for in the FCF calculation of their statements.

hi GreenRookie,
I took a snapshot look at APTT's 3Q15 results and got a little bit puzzled. The interest payment outflow is classified under 'financing' section but let's say for example SempcorpMarine (which I know you track), SCM actually accounts for the outflow of interest payment in their operating section - This classification is consistent in some of the other companies that I own/track as well. Another puzzling thing I observed with APTT is that for 9M15, the interest payment recorded in 'financing' section (27mil) was much lesser than the interest costs in the 'operating' section (37mil). This might be a timing difference in payments and so I took a look at FY14 results which records FY14 and FY13 results. Surprisingly, a deficit was also observed in both years (but smaller) - FY14 (operating:44mil, financing:40mil), FY13 (operating:25.2mil, financing:22.5mil). So the accumulative difference YTD for last 3years is 10+4+3 = 17mil...is this 17mil of costs been added into the principal?

[Boon]

Thanks yoyo and CF,

I think the classification matters. If we just take FCF as OCF - PPE, then those with fiancé expenses as operating cashflow would be "bigger than what it really is"

I was looking at what "sustainable dividends" or conservative dividends APTT could give by subtracting the capex for expansion for Taichung and discounting for its growth

So I guess my hunch feeling of subtracting it / not including it it OCF will give a more accurate picture of FCF

The input for valuation, is the "adjusted free cash flow", rather than OCF ex-PPE at face value in the financial report, isn't it?  

If part of the investing activities are recurring, i.e. part of the core operation, than it should also included into the "adjusted FCF" too, IMO.

For example, both SAT/SIAEC classify the dividends that they receive from JV/Associates in the 'investing' segment of the CF statement. This amount is substantial wrt their operating cashflow and should be accounted for in the FCF calculation of their statements.

hi GreenRookie,
I took a snapshot look at APTT's 3Q15 results and got a little bit puzzled. The interest payment outflow is classified under 'financing' section but let's say for example SempcorpMarine (which I know you track), SCM actually accounts for the outflow of interest payment in their operating section - This classification is consistent in some of the other companies that I own/track as well. Another puzzling thing I observed with APTT is that for 9M15, the interest payment recorded in 'financing' section (27mil) was much lesser than the interest costs in the 'operating' section (37mil). This might be a timing difference in payments and so I took a look at FY14 results which records FY14 and FY13 results. Surprisingly, a deficit was also observed in both years (but smaller) - FY14 (operating:44mil, financing:40mil), FY13 (operating:25.2mil, financing:22.5mil). So the accumulative difference YTD for last 3years is 10+4+3 = 17mil...is this 17mil of costs been added into the principal?

APTT
Other liabilities (page 75 of AR2014)
Change in interest payable from 2013 to 2014 = 0.204m (FY2013) to 0.118 m (FY2014) = -0.086 m
 
Interest and other finance costs (on income statement) =44.090 m
Consists of : (from page 83 of AR2014)
Interest expense on loans = 39.314 m
Amortisation of arrangement fees  = 4.030 m (non-cash item)
Commitment fees on loans = 0.746 m
 
Interest and other finance costs paid = 40.146 m ( Cash flows from financing activities on page 45 of AR2014 )
 
Difference = 44.090 – 40.146 = 3.944 = 4.030 – 0.086 = non-cash item + change in interest payable
_________________________________________________________________________________________________________

[Greenrookie]

Hi buddies,

I have some questions. How much is a owner hold
Liable for failure? 

For example, a company is bankrupt, all its assets are seized, can the owner's own assets such as properties or cash be seized? 

To what extent is interested party transaction "illegal"
When declared?

----

Rationale of asking:

With the fall of many companies, if the owners only liability is the shares of company going worthless, there is many ways to "transfer toxic" or "buy insurance" isn't it?

[specuvestor]

When a company is "Limited" it means the loss is limited to the equity of the company

But banks are also not stupid. So if they don't trust your $2 equity incorporation they will ask for collateral or even personal guarantee. The company can have a $100k asset and $2 equity but collateralised by the asset means the bank will lend say $50k and have right to seize and liquidate the asset in times of distress. That's why Hanjin ships were stuck cause they don't dare to be docked and be seized. If it is a personal guarantee in theory the owner assets can be seized but also depends where is the assets located eg China

And yes of course the interest of owners and opmi can differ if they have "side interest" Aligning shareholder interest is more than just having shares in the company, though that's one way. That's why they have to get shareholder approval for interested party approval to disclose the "side interest". Obscene remuneration is also a side interest.

[Greenrookie]

When a company is "Limited" it means the loss is limited to the equity of the company

But banks are also not stupid. So if they don't trust your $2 equity incorporation they will ask for collateral or even personal guarantee. The company can have a $100k asset and $2 equity but collateralised by the asset means the bank will lend say $50k and have right to seize and liquidate the asset in times of distress. That's why Hanjin ships were stuck cause they don't dare to be docked and be seized. If it is a personal guarantee in theory the owner assets can be seized but also depends where is the assets located eg China

And yes of course the interest of owners and opmi can differ if they have "side interest" Aligning shareholder interest is more than just having shares in the company, though that's one way. That's why they have to get shareholder approval for interested party approval to disclose the "side interest". Obscene remuneration is also a side interest.

Thanks Specuvestot,

How about this? I have a wel-run and strong balance sheet company A, to go into a risky venture, I set up B. I inject money but there are several leverage ways to magnified borrowings, so the buck stop at B. Those investors are B screwed? 

B can be an investment company that can invest or trade with contra or margin that loan more than their worth

[specuvestor]

Actually that's how individual property projects and ships to give an example, are set up. So most of the time buying and selling is through these entities rather than through the underlying asset, though news report that so and so asset is sold or bought

And sometimes for tax purpose it may be a few layers as well.

[HitandRun]

Greenrookie

I think specuvestor has given a good summary and some good examples.

If we look at a case of say Sweeber, it may have different groups of creditors (listed in no particular order):

1. Inter-co (related parties)
2. Employees
3. Financial Institutions (e.g. DeeBiz Bank)
4. Govt (tax, etc.)
5. Suppliers (capex, opex)

As a company (especially the size of Sweeber) does not go belly up overnight, management should have realisation when things are going south. At that point in time, it is also very possible to "prefer" 1 creditor or 1 group of creditor over the others. Although theoretical bankruptcy laws allow the liquidator to go after such payments, practically, it could be difficult to do so unless there is good evidence.

I'm not sure whether you are familiar with the case of Juber Choo (Vietnamese buying iphone in Simipunlim square incident). If I did not remember wrongly, Juber Choo has been setting various shell companies to conduct his illicit activities. In the end, the prosecution only prosecute him for his blatant activities in the current company. The evidence might have been insufficient or weak to prosecute him for earlier offences.

To conclude, I would say 道高一尺，魔高一丈 in the sense that creditors would try to go after the company or its owners but a savvy (or unscrupulous) owner has many ways to hide / defraud his creditors too.

P.S. Any similarity or resemblance to real events or persons is purely coincidental.

[newborn1000]

I got a question, same scenario, but the owner of the company is the parent company/investment holding company

So in this case what does the bank ask for since personal guarantee is no longer applicable?

Of course still can ask for collateral, but what else.......maybe corporate guarantee?

[TTTI]

I got a question, same scenario, but the owner of the company is the parent company/investment holding company

So in this case what does the bank ask for since personal guarantee is no longer applicable?

Of course still can ask for collateral, but what else.......maybe corporate guarantee?

Not corporate guarantee.
They'd either ask for personal guarantee from the directors of the parent company, or if the parent company has assets, then secure the loan against the assets.

Corporate guarantee is not acceptable to the lender as the company assets can change very quickly, and the companies have limited liability.
For eg. the owners can transfer/sell assets to another company, rendering the current company as a shell company immediately.

I personally am a guarantor for some company loans.
As long as the bank deems that your personal finances are good for the loan, they'd prefer personal guarantees.

[newborn1000]

Thanks, I have not done financing at parent company level yet, so was always on my mind